Two-way Communication Costs and the Boundaries of the Firm

Casson and Wadeson (International Journal of the Economics of Business, 1998, 5, pp. 5-27) have modelled the dialogue, or conversation, which customers have with their suppliers in order to convey their requirements, while taking production implications into account. They showed that this has import...

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Bibliographic Details
Published in:International journal of the economics of business 1999-11, Vol.6 (3), p.301-329
Main Author: Wadeson, Nigel
Format: Article
Language:English
Subjects:
Communication
Complexity
Cost analysis
Customer relations
Economic models
Economic theory
Firm
Firm theory
Information
Information economics
Product Development
Software
Software development
Studies
Suppliers
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Summary:Casson and Wadeson (International Journal of the Economics of Business, 1998, 5, pp. 5-27) have modelled the dialogue, or conversation, which customers have with their suppliers in order to convey their requirements, while taking production implications into account. They showed that this has important implications for the positioning of the boundaries of the firm. Unfortunately, their model has the restriction that communication is only costly in the direction of customer to supplier. This paper extends their model by introducing two-way communication costs. It shows that the level of communication cost in the direction of supplier to customer is a key additional factor in determining the nature of the dialogue that takes place. It also shows that this has important additional implications for the positioning of the boundaries of the firm. Custom computer software development is used as an example of an application of the theory.
ISSN:1357-1516
1466-1829
DOI:10.1080/13571519984106