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Transaction costs can be defined as the costs of getting some good or service through the market rather than providing it within the company. These are the costs of making trades with other companies.
For example, firms like Wal-Mart incur search and information costs. They have to determine which companies can sell them the things they need. They have to determine which of these potential sellers would provide them with the best deal. This can be particularly difficult as the firms deal with suppliers in places like China that are far away and may be difficult to deal with.
Once a deal has been made, the firms have policing and enforcement costs. They must hold their suppliers to the deals that they have made. This can, once again, be difficult as Wal-Mart deals with suppliers in places with legal systems that are very different than our own.
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