What are transaction costs?
Transaction costs are the costs incurred as part of a transaction. A transaction is the transfer of goods or receivables - so-called economic objects - between two "economic entities" - these can be persons or companies. The price of a product is therefore not a transaction cost. According to transaction cost theory, transaction costs are incurred in every transaction.
Transactions can be differentiated according to when they occur. Some transaction costs are incurred before the transaction (ex ante) and some afterwards (ex post):
Ex ante transaction costs (advertising costs):
- Costs for initiating the transaction
- Costs for obtaining information on potential transaction partners
- Costs for the agreement such as the creation of contract texts
Ex post transaction costs:
- Costs for processing (broker commission)
- Costs for changes and adjustments
- Costs for checking agreements and commitments
An example: When buying a property, costs for the estate agent (commission, brokerage fee) or for expert opinions may be incurred in addition to the actual purchase price. Land transfer tax and notary fees for drawing up the contract and notarizing the purchase, which are also included in the transaction costs, cannot be avoided. The example of real estate purchases shows that transaction costs can be an obstacle to reaching an agreement. The cost of an estate agent can stretch the budget for buying a home.
