Transaction cost

From Market
Jump to: navigation, search

Definition

A transaction cost is any cost incurred by the parties to a transaction (typically, a buyer and seller) needed in order to carry out the transaction, over and above the cost reflected in the price of the good. Since costs borne by sellers are typically reflected in the price of the good, the term transaction cost typically refers only to additional costs borne by the buyer.

Transaction costs include search costs (these are the costs necessary to locate the seller and verify the seller's quality) as well as costs of time, money and effort involved in making the purchase (for instance, the cost in time of withdrawing money to make the purchase, visiting the seller's shop, buying the good, and transporting it home).