Understanding consumer online shopping behaviour from the perspective of transaction costs

3.2 TCT 
It is imperative to understand TCT because it serves as an overarching theoretical foundation 
for this research. TCT is under the umbrella of the paradigm of New Institutional Economics. 
According to the theory of classical economics, a transaction is conducted without any cost in 
the market because the information available to a seller and a buyer is symmetrical (Teo and 
Yu 2005). However, Coase (1937), who proposes the TCT, indicates that information 
between economic actors participating effectively in economic activities in a form of either 
business to business (B2B) or business to consumer (B2C) is only partial in the real market. 
Williamson (1975) has added considerable precision to Coase’s general argument and 
developed the current TCT approach. Williamson (1979) assumes that firms pursued profit 
maximization, and that profit maximization requires costs minimization. He argues TCs are 

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incurred by departures from perfection, such as friction. Deviations from the perfectly 
efficient market result in greater costs to firms when they attempted to buy or sell goods or 
services. Under some circumstances, TCs may be lower if the transaction takes place in an 
open market (market), while under other situations, TCs may be lower if managers coordinate 
the transaction (hierarchy). TCT’s contribution lies in the ability the user has to predict the 
governance structure (market, hybrid, or hierarchy) for a transaction as a function of the 
dimensions (asset specificity, uncertainty, and frequency) of the transaction. TCT has been 
applied to address many issues such as the strategic impact of information systems, resource 
allocation, and outsourcing decisions (Pitt and Foreman 1999, Anderson 2008, Verbeke and 
Kano 2013). The following section studies the assumptions, dimensions, and basic 
propositions pertaining to TCT.