Economie institutionnelle

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Chapter 3: Transactions costs and switching costs

Definitions:

Transaction: the transfer of the right of usage between technologically separable entities

- Not only buying or selling something but also exchange within one firm

Cost expense[pic 8]

Expense in monetary term is how much you spend

Cost can be a expense (ex: paying an intermediary) but also includes other elements : time, effort…

End of the contract and decision on the next contract Velib’s (16/10)

- The main arguments in favor of remaining with JCDecaux:

- Knowledge of the local market

- Trained employees

- An informational advantage over a potential new operator

- No need to remove equipment and no need to make new investment

- Changing the operator

- Drawbacks of previous contract include:

- Operation of velib s has not been satisfactory

- Quality criteria always not respected

- Information asymmetry problems could not be veritably solved

- Opportunism of the operator

- Which improvements

- Extension of the network to the suburbs

- Negotiate a contract which is financially more advantageous for the municipality

- Separate advertising market from public bicycles

- Introduce new quality requirements

- Modernize the equipment

- Electric bicycles

- Modernize stations

- Modernize the system to use the bicycles

- Better protection from theft

Chap 3:

Transactions costs: all the costs when you exchange,

Transaction: the transfer of a right of usage between technologically separable entities

Make a buy decision

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Cost of make increase cost of buy

Ronald Coase the inventor of transaction’s cost

Types of transactions costs:

- Searching costs (the cost to compare offers and to select a partner for contracting)

- Bargaining costs (cost to negotiate a agreement)

- Enforcement costs (include: monitoring cost, cost of renegotiation, costs of conflict resolution)

Switching costs

Switching occurs in repeated contracts or ongoing relationship

Switching costs occur at different stages:

- before the decision

- At the moment of switching

- After switching

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