B2b and the Transaction Costs Paradigm

Abstract

Business to Business (B2B) causes a significant contraction of transaction costs. According to the Coase paradigm we would thus expect a deverticalization of the industry and broader scope for anonymous market mechanisms. In reality, such expectations are not fully borne out by the facts. When the industrial structure is concentrated the B2B generally loses its independence, and is owned by the firms which most contribute to its development, e.g. the ones able to bring the liquidity to it. The B2B governance mechanism established by these firms gives hierarchical mechanisms a role which they do not usually play in deep, anonymous markets.

Keywords: Transaction costs, vertical integration, electronic commerce, market intermediaries, vertical competition

JEL Classification: D23, L22, L42, L81, L86