Transaction Costs in the Pharmaceutical Industry Term Paper by Peter Pen

Transaction Costs in the Pharmaceutical Industry
Looks at transaction costs, which are a key determinant of organizational size and governance structure, using the pharmaceutical industry as an example.
# 145419 | 2,700 words | 33 sources | APA | 2010
Published on Nov 08, 2010 in Business (Accounting) , Business (Industries) , Economics (Micro) , Medical and Health (Pharmacy)

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This paper reviews transaction costs as inputs relating to the costs of exchanging economic goods or services, such as finding trading partners and monitoring contracts. Next, the author looks at the pharmaceutical industry to find out how transaction costs begin, how the price mechanism affects transaction costs and how they relate to production costs. The paper concludes that, in the pharmaceutical industry, transaction cost economics explains the contractual relationships between pharmaceutical firms and academic laboratories, other private research and information technology firms and contract research organizations especially in the area of research and development.

Table of Contents:
Executive Summary
Costs of Using the Price Mechanism to Organize Resources
Production Costs versus Transaction Costs
A Single Firm Producing Everything in the Market?
Transaction Costs and Firm Structure and Size

From the Paper:

"Asset-specificity is where parties to a transaction make investments that have greater value within than outside a business relationship, thereby locking parties into that transaction. Since pharmaceutical products, scientists, analytical tools and processes are highly specialized and coordinated, asset-specificity is an important determinant of transaction costs in the pharmaceutical industry. Asset-specificity gives rise to quasi-rent and hold up. Quasi-rent is the extra profit a firm derives when it successfully deploys specific assets in their intended use, compared to their next best alternative use."

Sample of Sources Used:

  • Abdel-Latif AM Nugent JB-(1996). Transaction cost impairments to international trade: Lessons from Egypt. Contemporary Economic Policy. 14(2)1-14.
  • Anderson SW, Glenn D Sedatole KL (2000). Sourcing parts of complex products: evidence on transactions costs, high-powered incentives and ex-post opportunism. Accounting, Organizations and Society. 25723-749.
  • Besanko D, Dranove D, Shanley M & Shaefer S (2007). Economies of strategy. 3rd Edition, John Wiley Sons, Inc, New Jersey.
  • Cheung S (1998). The transaction costs paradigm. Economic Inquiry. 36, 4514-21.
  • Coase R (1937). The nature of the firm. Economica. 1937. 4386-405.

Cite this Term Paper:

APA Format

Transaction Costs in the Pharmaceutical Industry (2010, November 08) Retrieved February 28, 2024, from

MLA Format

"Transaction Costs in the Pharmaceutical Industry" 08 November 2010. Web. 28 February. 2024. <>