the decision by a firm on whether to make a component or product itself or to buy it from an external supplier (see OUTSOURCING). The decision will depend upon the combined production costs and TRANSACTION COSTS of the alternatives. Sometimes a firm may adopt mixes of the two policies, producing some quantity of the product itself and buying the remainder, depending upon the relative costs of the sources and security of supply considerations. See TRANSACTION for a more detailed discussion. See INTERNALIZATION, VERTICAL INTEGRATION.