5.7 Transaction Cost Theory

	Transaction cost theory deals with determining the best way to keep control of businesses, while at the same time taking into account the transactional costs.
	Figure 5.4 illustrates how transactional cost increases as the size of the company get larger.

IS should have a positive impact bearing this theory in mind.

If applied properly this theory helps keep closer links with customers, which in turn help keep the business in a better control overall.

Consequently, this results in a better functioning of the business.

The benefit of keeping closer ties with the customers is that it results in the business knowing what the customer wants exactly.

This is also linked to the microeconomic model as it allows supply and demand to be more in equilibrium.

	This means that there is no over or under supply of products in relation to meeting demand.
	IS implemented in the light of this theory help the organization reduce costs.

5.7 Transaction Cost Theory

Figure 5.4: Relationship between transaction cost and organization size