Swot Analysis of the Internet
Manchester Business School Worldwide
Managerial Economics
Assessment 1 Reference: ME/July10/1
Submitted by
Adegbiji, Olugbenga Bayowa
Student Number: 7504001
Introduction
In order to achieve profitability, management of organizations are often faced with decisions to perform certain activities within the organization or use the market. This is called make or buy decisions. A firm buys from the market, certain activities along the vertical chain of its production when it is more economically profitable to do so, considering other associated risks. It is either that the cost of making such services internally is higher due to a higher cost of internal co-ordination or that the firm sees opportunity in another firm with more specialization in the production of such goods or services and there is an advantage of economies of scale. Each of the option has its good side and its down side for a particular industry and type of productions. Therefore, organization is often faced with the challenge of being able to draw a line between what to do internally and what to obtain from outside.
Transaction cost economics (TCE) is associated with the coordination of the vertical chain of an organization to achieve cost and production efficiency. This can only be achieved by striking a balance between “make” and “buy” decisions at every stage of the vertical chain to ensure that the firm gets the best of the two worlds in order to achieve efficiency in production and profitability.
Key Characteristics of TCE
Transaction costs refers to cost of using the market that are saved by centralized direction. They include the costs from the expense of negotiating, writing, and enforcing contracts and the cost of opportunist behavior by either of the parties, when one or more parties seeks private gain at the expense of the greater good. Relations specific investment also increases
Managerial Economics
Assessment 1 Reference: ME/July10/1
Submitted by
Adegbiji, Olugbenga Bayowa
Student Number: 7504001
Introduction
In order to achieve profitability, management of organizations are often faced with decisions to perform certain activities within the organization or use the market. This is called make or buy decisions. A firm buys from the market, certain activities along the vertical chain of its production when it is more economically profitable to do so, considering other associated risks. It is either that the cost of making such services internally is higher due to a higher cost of internal co-ordination or that the firm sees opportunity in another firm with more specialization in the production of such goods or services and there is an advantage of economies of scale. Each of the option has its good side and its down side for a particular industry and type of productions. Therefore, organization is often faced with the challenge of being able to draw a line between what to do internally and what to obtain from outside.
Transaction cost economics (TCE) is associated with the coordination of the vertical chain of an organization to achieve cost and production efficiency. This can only be achieved by striking a balance between “make” and “buy” decisions at every stage of the vertical chain to ensure that the firm gets the best of the two worlds in order to achieve efficiency in production and profitability.
Key Characteristics of TCE
Transaction costs refers to cost of using the market that are saved by centralized direction. They include the costs from the expense of negotiating, writing, and enforcing contracts and the cost of opportunist behavior by either of the parties, when one or more parties seeks private gain at the expense of the greater good. Relations specific investment also increases
References: • Besanko D. et al (2010), “Economics of Strategy”, Wiley 2010 • Coase R. (1937), “The Nature of the Firm” • Vedpuriswar A. V (2003), “The Vertical Boundaries of the Firm” Available at www.vedpuriswar.org • Tan K. (2009), “The Firm” Available at www.econ.ohio-state.edu 1.Introduction