A Transaction cost Perspective on the Influence of Standards on Product Development Examples from the Fruit and Vegetable Market
AbstractIn this paper I argue that quality standards, products standards, and quality classes influence the priority that firms give to different product developments. These standards may be viewed as institutions in the sense of shared rules of behavior or codes. They have become shared because there are increasing returns to their use. These increasing returns apply both to their functions as means of reducing the costs of specifying and communicating product quality and to their functions as means of reducing buyers' costs of comparing the quality of different products - both of which are part of transaction costs. When reliable and extensively used standards exist, transaction costs are reduced. But these positive consequences to individual firms of adhering to the same standards create a sort of inertia in product development. This is because developments which are in line with existing standards will not introduce new transaction costs, while developments which break with the conformity of the standards will. In order for the latter kinds of product developments to be profitable, both development costs and transaction costs have to be overcome.
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Bibliographic InfoPaper provided by DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies in its series DRUID Working Papers with number 96-9.
Date of creation: 1996
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Web page: http://www.druid.dk/
Transaction costs; product development standards;
Find related papers by JEL classification:
- D1 - Microeconomics - - Household Behavior
- D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
- D8 - Microeconomics - - Information, Knowledge, and Uncertainty
- O3 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights
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