Understanding and analyzing transaction cost theory: the perspective of cross-border e-commerce

Traffic Cost Theory, also known as transaction cost theory, was first proposed in 1937 by Nobel Prize winner Ronald Harry Coase (R.H. Coase). This theory aims to study the institutional characteristics of economic organizations through comparative institutional analysis methods, and conducts analysis around the core concept of reducing transaction costs. The basic idea of ​​transaction cost theory is to explore what kind of system should be adopted to coordinate various transactions based on different transaction characteristics.

According to Coase, transaction costs are a series of expenses required to obtain accurate market information, conduct negotiations, and maintain long-term contracts. These costs include information search costs, negotiation costs, contracting costs, monitoring performance costs and default handling costs. Therefore, transaction costs can be classified into two categories: ex ante and ex post. Ex ante transaction costs involve contract signing and negotiation; ex post transaction costs include the costs of dealing with adaptation issues, renegotiating, and resolving disputes.

The sources of transaction costs are mainly affected by human factors and trading environment factors, leading to the following important market failures:

1. Bounded Rationality: The constraints formed by trading participants due to physical, emotional and other limitations in the process of maximizing benefits.

2. Opportunism: All parties to a transaction seek their own interests and use fraudulent means to increase mutual distrust, thereby increasing supervision costs and reducing economic efficiency.

3. Uncertainty and Complexity: Unforeseen changes in the environment increase the risks for both parties to the transaction, causing the overall negotiation cost to rise.

4. Small Numbers: Some exclusive transactions or information heterogeneity lead to too few market suppliers, resulting in market failure.

5. Information Asymmetric: Both parties to the transaction have different levels of information due to self-interested behavior, allowing those who occupy the market first to possess more favorable information, further restricting market competition.

6. Atmosphere: If both parties to the transaction lack trust, it will lead to unnecessary complicated procedures and increase transaction costs.

The occurrence of transaction costs is directly related to three transaction characteristics:

1. Specificity (Asset Specificity): The market liquidity of investment assets is poor. Once the contract is terminated, the cost invested is difficult to recover.

2. Uncertainty: The risks and uncertainties of transactions affect the decision-making and contract maintenance of both parties.

3. Frequency of Transaction: High transaction frequency will lead to higher management and bargaining costs, so companies may choose to internalize to reduce transaction costs.

Through the above analysis, transaction cost theory provides important theoretical support for the operation of cross-border e-commerce, helping practitioners understand the various economic costs and challenges they may face in the international trade environment.