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A Transaction cost Perspective on the Influence of Standards on Product Development Examples from the Fruit and Vegetable Market

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  • Kirsten Foss

Abstract

In 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.

Suggested Citation

  • Kirsten Foss, 1996. "A Transaction cost Perspective on the Influence of Standards on Product Development Examples from the Fruit and Vegetable Market," DRUID Working Papers 96-9, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies.
  • Handle: RePEc:aal:abbswp:96-9
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    References listed on IDEAS

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    More about this item

    Keywords

    Transaction costs; product development standards;

    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, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights

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