An empirical test of transaction cost theory : validating the analysis of discrete structural alternatives

Abstract

The purpose in the current study is to test the transaction cost theory's propositions regarding the options of market, hybrid and hierarchy through surveying wineries in DOC Rioja. In general, we find evidence to support the view that the higher the transaction costs relative to market governance, the more it is likely that the governance mechanism will move towards hierarchy. However, this framework is by no means a complete explanation. Our results indicate that other variables outside the framework, such as production experience and quality play an important role in the governance mode decision.