Understanding consumer online shopping behaviour from the perspective of transaction costs

3.2.3 The Basic Propositions of TCT
 
The general proposition of TCT is that governance structure (market, hybrid, and hierarchy) 
is the function of the dimensions of the transaction (asset specificity, environmental 
uncertainty, behavioural uncertainty, and frequency) (Williamson 1985). Specifically, the 
original TCT framework contains four basic propositions, each proposition linking the 
dependent construct and one of the independent constructs. 
The first proposition is that high levels of asset specificity induce firms to employ vertical 
integration to conduct a transaction. The argument is that because of the opportunistic 
behaviour of exchange partners, a high amount of asset specificity increases the costs of 
safeguarding contractual agreements; when faced with the need to safeguard specific assets 
invested in an exchange relationship, a firm will seek to minimize its TCs through vertical 
integration. 
The second proposition is that high levels of environmental uncertainty make firms employ 
vertical integration to conduct a transaction. The argument is that a high amount of 
environmental uncertainty increases the costs of adapting contractual agreements; when faced 

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with the need to adapt to an uncertain circumstance, a firm will seek to minimize its TCs 
through vertical integration. 
The third basic proposition is that high levels of behavioural uncertainty push firms to 
employ vertical integration to conduct a transaction. The argument is that high levels of 
behavioural uncertainty increase the costs of measuring the performance of exchange partners; 
when faced with difficulties in assessing the performance of its exchange partners, a firm will 
seek to minimize its TCs through vertical integration. 
The fourth basic proposition is that high levels of transaction frequency encourage firms to 
employ vertical integration to conduct a transaction. The argument is that higher levels of 
transaction frequency provide an incentive for firms to employ vertical integration because 
large transactions of a recurring kind make it easier for a firm to recover the cost of specific 
assets invested. 
This means that firms choose a governance structure that can minimize TCs. Thus, TCs can 
determine the transaction mode selection. Understanding this is very important because it 
serves as the fundamental logic behind the research framework of this study. The next part 
will explain how to transpose it into an online shopping context.