Ross Mayfield

It used to be easy to measure transaction costs especially when looking at economies of scale and speed. That’s what helped justify centralization in vertically integrated firms. In the more dynamic and decentralized world, the value shifts to economies of scope. The real problem that we have is we have no transaction-cost analysis like “build versus buy” for determining whether I should share an asset and cooperate with other firms to develop greater capabilities. To create such opportunities and convince managers and decision makers that they are worthwhile, you have to deal with the fact they have been schooled in a different kind of thought. Fundamentally they have been schooled in a competitive environment where you gain by hoarding information and where there’s no rationale for more open architectures and participation.

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