transaction costs

Transaction Cost

The total cost of a security transaction after commissions, taxes, and other expenses. For example, a security has a price, but transaction costs include the fee one must pay the broker, capital gains taxes, among other things.

transaction costs

The expense incurred in buying or selling a security. Transaction costs include commissions, markups, markdowns, fees, and any direct taxes. Transaction costs, which are of special significance to investors who frequently trade securities, can vary substantially depending upon the firm with which the investor conducts business. See also discount brokerage firm.

transaction costs

the costs associated with the activities of buying and selling in a MARKET system (see TRANSACTION). For example, firms incur costs in finding satisfactory input suppliers and distributors for their products and in negotiating, concluding and monitoring CONTRACTS with other firms. In some market situations, transaction costs may be inflated by the application of monopoly surcharges by powerful suppliers. Although a firm may avoid some transaction costs by VERTICAL INTEGRATION (i.e. performing some functions internally), these may well be offset by the higher administrative, stockholding and other costs involved in running a vertically integrated business. See AGENCY COSTS.

transaction costs

the costs incurred in the EXCHANGE of an INPUT, GOOD, SERVICE or ASSET between two or more individuals or firms. TRANSACTIONS can take place through a MARKET, which involves the ‘arm‘s-length’ buying and selling of inputs, goods, services and assets using the PRICE SYSTEM, or transactions may be ‘internalized’ through an internal ORGANIZATION, which involves the interchange of inputs, goods, services and assets between the various departments of a firm, often using an internal TRANSFER PRICING system.

The transaction costs of using the market include the ‘search’ costs of finding suitable input suppliers and distributors for the firm's output, the administrative and legal costs involved in drawing up CONTRACTS with suppliers/distributors, specifying terms and conditions of supply/delivery the costs of‘monitoring‘whether or not the terms and conditions of the contract have been adhered to, and the costs of dealing with non-compliance (e.g. the return of defective components). Where a firm deals with a multitude of suppliers/distributors, this takes up management time as well as involving substantial ‘policing’ costs. In addition, the firm may be faced by powerful input suppliers and distributors who are able to impose monopolistic surcharges on the terms of exchange and/or operate PRICE SQUEEZES, REFUSALS TO SUPPLY, etc.

For these reasons, a firm may seek to eliminate external transaction costs by engaging in self-supply of inputs and self-distribution of its products, thus substituting an internal organization for the market. It is important, however, to emphasize that the elimination of external transactions does not represent a ‘pure’ saving. By ‘internalizing’ transactions, the firm now incurs extra internal expenses - the greater administrative costs of running an enlarged operation - and it may encounter ‘agency’ problems (see AGENCY COSTS). See TRANSACTION for further discussion.

The Coase theorem suggests that the decision by a firm to use markets to undertake exchanges rather than to internalize such exchanges will be determined by the amount of transaction costs involved in undertaking any specific exchange. See INTERNALIZATION, OUTSOURCING.

References in periodicals archive ?
Tomorrow 3.0: Transaction Costs and the Sharing Economy
The transaction is expected to be approximately 2% dilutive to United's tangible book value per share, including one-time transaction costs. Additionally, it is expected to be slightly accretive to United's fully diluted earnings per share for its partial year contribution in 2019, excluding one-time transaction costs, and 5c per share accretive in 2020.
The association between the two firms is intended to allow the French bank to provide its buy-side clients with access to analytics on transaction costs.
The Coase theorem, as commonly understood, says that in the absence of transaction costs, the allocation of resources is independent of the assignment of property rights--or, restated in more descriptive terms, in the absence of transaction costs, resources are allocated to their highest-valued uses.
The proceeds of the offering, together with local bank debt, will be used to acquire the American British School in Chile and pay related local transaction costs, with the remaining amounts to be used to fund cash on balance sheet for general corporate purposes and to pay transaction costs and expenses related to the placement of the Notes.
Faseru said that slow operations at the ports had resulted to increase in transaction costs for exporters, adding that this had implications on the cost of agricultural produce at the international market.
Further, stochastic interest rates and transaction costs are added to the fractional models.
This means trading bitcoin at a higher frequency, balancing transaction costs and execution risk 6 and this can be facilitated by machine learning.
Schachermayer presents and organizes recent developments in portfolio optimization under proportional transaction costs when lambda is greater than zero, but paying special attention to the asymptotic behavior as lambda tends to zero.
This present research presents a partial explanation to this question by analyzing the effects of transaction costs on cost accounting plans.
The quantitative effect on the snack food market stems from the lower transaction costs perceived by customers, which results in an increase in market size.
It was about transaction costs: it asked what happened if buyers and sellers had to row from island to island in order to exchange their goods.

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