Preprint Article Version 1 Preserved in Portico This version is not peer-reviewed

Transaction Costs: Economies of Scale, Optimum, Equilibrium and Efficiency – A Game Theory-Based Model of Transaction Costs

Version 1 : Received: 25 October 2020 / Approved: 27 October 2020 / Online: 27 October 2020 (07:50:07 CET)

How to cite: Kállay, L.; Takács, T.; Trautmann, L. Transaction Costs: Economies of Scale, Optimum, Equilibrium and Efficiency – A Game Theory-Based Model of Transaction Costs. Preprints 2020, 2020100535 (doi: 10.20944/preprints202010.0535.v1). Kállay, L.; Takács, T.; Trautmann, L. Transaction Costs: Economies of Scale, Optimum, Equilibrium and Efficiency – A Game Theory-Based Model of Transaction Costs. Preprints 2020, 2020100535 (doi: 10.20944/preprints202010.0535.v1).

Abstract

The aim of this article is to propose a core game theory model of transaction costs wherein it is indicated how direct costs determine the probability of loss and subsequent transaction costs. The existence of optimum is proven, and the way in which exposure influences the location of the optimum is demonstrated. The decisions are described as a two-player game and it is discussed how the transaction cost sharing rule determines whether the optimum point of transaction costs is the same as the equilibrium of the game. The dispute between actors regarding changing the share of transaction costs to be paid by each party is modeled by a non-cooperative bargaining game. Requirements of efficient transaction cost sharing rules are defined, and it is posited that solution exists which is not unique. Policy conclusions are also devised based on principles of design of institutions to influence the nature of transaction costs.

Subject Areas

transaction cost; game theoretic model; uncertainty

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