Understanding consumer online shopping behaviour from the perspective of transaction costs

3.2.1 The Assumptions of TCT 
There are three assumptions underlying the choice between market and hierarchy, including 
bounded rationality, opportunism and risk neutrality (Rindfleisch and Heide 1997). Bounded 
rationality refers to the constraints and limitations of individuals of their cognitive 
capabilities and rationality (Williamson 1981a). TCT recognizes that not all contingencies 
can be anticipated and can be included in a contract due to humans’ limited capabilities to 
solve complex problems. Thus, Simon (1978) states that individuals’ limited information 
processing and communication abilities may impede their ability to act rationally. 
Opportunism is the assumption which refers to an individual’s quest to serve his/her own 
self-interests. Williamson (1985) defines opportunism as self-interest seeking with guile. He 
also considers that individuals might have an inclination toward taking advantage in 
unforeseen environments. For instance, a service provider could exploit the circumstances 
opportunistically by taking advantage of the vulnerability of the customer.
Risk neutrality is 

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the assumption that all transactors are neutral in their attitudes toward risk (Williamson 1985). 
Compared with bounded rationality and opportunism, risk neutrality has received limited 
attention in the TCT literature (Rindfleisch and Heide 1997). 
3.2.2 The Dimensions of the Transaction 
According to Williamson (1981a), three critical dimensions for characterizing transactions 
are asset specificity, uncertainty and transaction frequency. Asset specificity refers to the 
degree to which assets are specified to a specific transaction (Rindfleisch and Heide 1997). 
Assets with high levels of specificity involve sunk costs that have little or no value outside of 
a particular exchange relationship. Asset specificity associated with a transaction is 
decomposed into four main aspects (site, physical asset, human asset and time). Site 
specificity means that a product may be more efficient to be traded in a particular location. 
Physical asset specificity indicates that transactions of certain products might need special 
physical equipment. Human asset specificity refers to investment in time and effort to 
accumulate transaction experience. Transactions of certain products may need special human 
expertise. The last one is time specificity, stating that the timing of transactions may affect 
the TCs. 
 
Uncertainty refers to the uncertain environments in which the circumstances surrounding a 
transaction cannot be specified 
ex ante 
(i.e., environmental uncertainty) and performance 
cannot be easily evaluated 
ex post 
(i.e., behavioural uncertainty) (Rindfleisch and Heide 
1997). Specifically, environmental uncertainty is unpredicted changes in circumstances 
surrounding a transaction (Rindfleisch and Heide 1997); behavioural uncertainty arises from 
the difficulties associated with monitoring and evaluating the contractual performance of 

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exchange partners. The overall effect of uncertainty on the perceived TCs would be the 
aggregated effect of these two kinds of uncertainties. 
Frequency refers to the frequency with which transactions recur (Williamson 1985). 
Compared with the dimensions of asset specificity and uncertainty, the TCT literature has 
paid limited attention to the dimension of transaction frequency.