Transactional Costs

Transaction: a mutual exchange of value.

Transactional Costs: time and resources (information, mediums, etc) to conduct a valuable transaction. i.e. the friction of doing business.

The goal of business is to satisfy a demand for something of value.

Transactional costs are often not accounted for in business transactions, because they are incurred by the purchasing party, but they remain a decisive psychological factor in the decision to conduct an exchange. e.g. Waiting in line to purchase, waiting to process an order, learning the value of a thing (creating symmetric information between agents), delivery time, the learning curve needed to utilize the thing of value, etc.

The best business management identifies transactional costs and organizes people and processes to reduce transactional costs as much as possible.

The most competitive businesses have the lowest transactional costs. E.g. Amazon, fast food, mobile apps, self-checkout, PayPal, Square, etc.

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