Can vertical integration be explained entirely by transaction costs?
… Dalhman) have even argued that in fact all TC are due to uncertainty. In any case, as Williamson pointed out, imperfect information is a problem mainly because of two behavioural traits: bounded rationality and opportunism. Bounded rationality, a concept of H. Simon, has been defined as a “biological limitation of the ability to receive, store and retrieve information”. It can cause TC because it means agents will have to incur extra costs to process and understand information while if they fail to take into account all contingencies so that further negotiation will be needed after the unexpected event. Opportunism which refers to “self-interest with guile” means that agents may exploit asymmetric information they possess leading to (fears of) adverse selection ex ante and moral hazard ex post. The complexity of the transaction and its frequency are also important determinants of TC. Williamson suggested that “Asset specificity” (AS) is another important determinant …
