<p>I very much like this question and Alecos' answer. </p>

<p>We understand the role of transaction costs in the generation of externalities. But the transaction costs concept itself is very difficult to define rigorously. <a href="http://www.jstor.org/stable/725216?seq=1#page_scan_tab_contents" rel="nofollow">Dalhman</a> (1979) examines what kinds of transaction costs are necessary to generate externalities. He defines a workable concept of transaction costs: search and information costs, bargaining and decision costs, policing and enforcement costs. But he adds (p. 148) that </p>

<blockquote>
  <p>"this functional taxonomy of different transaction costs is
  unnecessarily elaborate: fundamentally, the three classes reduce to a
  single one-for they all have in common that they represent <strong>resource
  losses due to lack of information</strong>."</p>
</blockquote>

<p>As far as I understand, in the international economics field, "costs of travel to buy goods" are considered as <strong>trade costs</strong>.</p>

<p>According to <a href="https://www.aeaweb.org/articles.php?doi=10.1257/0022051042177649" rel="nofollow">Anderson and van Wincoop (2004)</a>, p. 691-2</p>

<blockquote>
  <p>Trade costs, broadly defined, include all costs incurred in getting  a
  good to a final user other than the marginal cost of producing the
  good itself: transportation costs (both freight costs and time costs),
  policy barriers (tariffs and nontariff barriers), information costs,
  contract enforcement costs, costs associated with the use of different
  currencies, legal and regulatory costs, and local distribution costs
  (wholesale and retail).</p>
</blockquote>

CC BY-SA 3.0
2015-11-24T02:30:34.997Z
2015-11-24T02:30:34.997Z
emeryville
<p>Short Answer: No.</p>

<p>Transaction costs are defined as costs related to overcoming a market imperfection. Most people do not consider distance from a store(market) to be a market imperfection, but in some cases some do consider this.
It was always my professors' opinion that transaction costs should not include transportation costs and in what follows I'll tell you why.</p>

<p>With transaction costs we typically never mean transportation costs. Transportation is considered another good (rather a service) that we pay for. Transportation is a welfare/utility increasing good, which you would like to have. Therefore transportation has a positive price.</p>

<p>Transaction costs refer to costs that do not go towards obtaining more welfare enhancing (desired) goods and services.</p>

<p>In your supermarket example, the cost of searching for your desired good would be the transaction cost. Searching for it is costly, however does not provide you with any extra good/service/utility, so this cost is purely about obtaining another good and is a cost in addition to the price of the good and nothing more.</p>

CC BY-SA 3.0
2015-11-24T00:53:19.213Z
I think this answer is incorrect. This definition includes transport: http://www.businessdictionary.com/definition/transaction-cost.html (admittedly I don't know much about this dictionary). I can't think of a reason distance to the market would not be a transaction cost.
Jamzy
CC BY-SA 3.0
2015-11-24T00:57:49.960Z
The businessdictionary definition says transaction costs *may also* include transportation costs meaning that they also may not include them. In my answer I said that it may be ambiguous depending on your point of view. As for why its not a transaction cost, I gave the argument of transportation as a seperate service and not exclusively related to the exchange itself. You can buy something with no market imperfection before and regardless of how you will transport it (in the store).E.g. I have access to markets through Amazon and easily buy (legally become the owner) of goods far away from me.
BB King
CC BY-SA 3.0
2015-11-24T01:01:42.810Z
@Jamzy Continuing the example: When I purchase something online this goes well with or without transportation costs. So the transportation costs exist outside of my access to the marketplace. To actually obtain the goods, I or Amazon for me hires a separate service provider, i.e. the post or DHL,etc. to send me the goods. However I have access to the online market and can buy things regardless of where I am. 
As I mentioned, it is my and my professors' opinion that transportation costs are not transaction costs, however I also said that opinions might differ here.
BB King
CC BY-SA 3.0
2015-11-24T01:10:13.463Z
I suppose in many analysis it would be discretionary as to whether transaction costs are considered. It very much depends on the scale of the cost as to whether it is worthwhile. I don't see transportation to and from a supermarket as something fundamentally different from a credit card fee on a transaction. Merely an ancillary cost to the primary exchange.
Jamzy
CC BY-SA 3.0
2015-11-24T01:10:37.120Z
Sorry, I don't quite follow your amazon example. Could you please clarify it.
Jamzy
CC BY-SA 3.0
2015-11-24T01:40:46.040Z
You write "Transportation is a welfare/utility increasing good, which you would like to have". What is "welfare/utility increasing" is decided by the individual. If my desire would be to avoid the trip I have to undertake to buy the good, then the trip creates disutility, which in a monetized form essentially functions as a cost to be added to the price of the good. Alternatively, the consumer's budget to buy the goods is _net_ of such obligatory costs. This is why we don't usually travel 3.000 Km to buy a bar of chocolate that cannot be found nearer to us.
Alecos Papadopoulos
CC BY-SA 3.0
2015-11-24T02:01:51.300Z
Since the trip creates disutility the transportation service creates utility  and as a service it can be viewed as a seperate good that is purchased. A perfect complement to the original good, but a seperate good nonetheless. 3000km would translate to an expensive transportation service. It is normal to not buy expensive goods of any kind including transportation which is why we don't travel 3000km for chocolate. The same way as a very expensive tennis ball may prevent me from buying a racket. This is a view often argued.I suppose there are other views as well.
BB King
CC BY-SA 3.0
2015-11-24T02:07:45.147Z
Note that the value of transportation may exceed the price/cost of transportation (the post ships for a cheaper price than my disutility from going there myself). This cannot be the case with transaction costs, since with them nothing is gained purely from the transaction cost (seperately from the good) - no value created there by definition. Hence  value cannot exceed costs with transaction costs. People often choose whether to have furniture shipped or not so shipping can create value and isnt always necessary to obtain the good. One canot choose to incurr transaction costs however.
BB King
CC BY-SA 3.0
2015-11-24T00:29:27.700Z
2015-11-24T00:44:16.750Z
2015-11-24T00:44:16.750Z
BB King
<p>Yes</p>

<p>A wikipedia definition:</p>

<blockquote>
  <p>a transaction cost is a cost incurred in making an economic exchange (restated: the cost of participating in a market).</p>
</blockquote>

<p>transport to a shopping center can definitely be considered a cost of participating in a market.</p>

<p>More intuitively, the idea of a transaction cost involves costs incurred on the consumer other than the direct price of a good.</p>

<p>This fits both the definition, and the intention of the definition.</p>

CC BY-SA 3.0
2015-11-24T00:30:57.853Z
2015-11-24T00:30:57.853Z
Jamzy
<p>Since it was mentioned in an another answer let's clear this first: whether the transportation (and its time and monetary costs) should be associated with the intended consumption of the good you are going to purchase, or it can be considered as consumption on its own, depends on your subjective view of it: do you derive any form of pleasure by the trip itself? If yes, at least part of it should be considered consumption <em>per se</em>.</p>

<p>The consensus among economists appears to be that most of such travel is not considered by the consumers as utility-enhancing per se (although trends like "family-shopping on Saturday" may say a different story), and so it should be interpreted in a different way. </p>

<p>In the field of Industrial Organization, the good's distance from the consumer has been often treated as an aspect of <em>product differentiation</em>. </p>

<p>You could certainly treat it as a "transaction cost", by suitably define the scope of the concept. Personally I prefer to think of it as an <em>access</em> cost. I hit upon this concept in a little side-research I did in hedonic-price analysis.</p>

<p>If you start to think about it, all packaging and transportation costs <em>from the supplier to the shop</em> are also "access costs" from the point of view of the consumer. They don't provide any <em>direct</em> utility to him -they are obligatory costs that end up increasing the price, so that the consumer is able to acquire the good and enjoy the services/utility of the good itself.</p>

<p>Think computers: only the materials themselves and the technology embodied in them provide utility to you (plus maybe the brand). But the price includes all shorts of overheads, like the access costs I mentioned, or marketing costs (that can be seen as information costs or as the price to pay for competition and the innovation and product variety that brings along), etc. </p>

CC BY-SA 3.0
2015-11-24T02:42:47.130Z
The only problem I have with this view is that transporting the good (travel) indirectly has a market through transportation companies that do it for you. Just as waste disposal is a good/service, even though I receive no utility from waste. In my view,  if there is a market for it,  it becomes a seperate good/service. I can purchase a good online without consuming it (no transportation) so transportation per se doesnt affect obtaining the good (legally). I can also buy a useless tennis racket without a ball and never consume the racket. Transportation affects consumption but not purchase.
BB King
CC BY-SA 3.0
2015-11-24T02:50:54.293Z
@BBKing Goods and services are bundled routinely. What is a separate good to somebody, is an associated cost to some other good for somebody else. We are not talking about "transportation services" in general here, which certainly have market(s) on their own, and are utility-enhancing in many cases (say, sight seeing on an open bus, etc). We are talking about a specific action that must be undertaken (when it must) in order to purchase and consume a good.
Alecos Papadopoulos
CC BY-SA 3.0
2015-11-24T08:09:56.443Z
There's always a market available in having someone else go to the store, buy the good, and bring it to my place of choice. If I buy a banana at the grocery store, the service of transporting the banana to the grocery store is bundled in the price. If I want the banana delivered to my home, I can do it myself, at some cost, or I can get TaskRabbit, Instacart, a random dude on Craigslist, the store's delivery service, a friend, etc... to deliver, which may involve different costs. The actual good we care about is a banana in my home, not the mere legal ownership of a banana somewhere.
Zach Lipton
CC BY-SA 3.0
2015-11-24T01:51:40.590Z
2015-11-24T02:36:00.930Z
2015-11-24T02:36:00.930Z
Alecos Papadopoulos
<p>Within the approach of New Institutional Economics associated with Oliver Williamson and others, emphasis is placed on <em>transaction costs</em> as a key factor in explaining why different forms of economic organisation arise in different circumstances.  Transaction costs have been defined, eg <a href="https://www.auburn.edu/~johnspm/gloss/transaction_costs">here</a>, as including search and information costs, bargaining and decision costs, and policing and enforcement costs.</p>

<p><em>Question</em>: Suppose I go to a supermarket that I know well, buy branded packaged goods of kinds that I have bought many times before, and transport the goods home.  Should the cost of my travel to the supermarket and transporting the goods home, in this situation in which any elements of search, information gathering, etc are minimal, be regarded as a transaction cost?</p>

CC BY-SA 3.0
2015-11-24T02:18:01.903Z
Wonderful question as evident from the confusion below. Let me add something to this confusion: I think it depends on your definition on what constitutes a market for a good. If all bananas in the world are part of the same market, then it may (or may not) be the case that transportation costs are part of transaction costs. If a banana across the street is part of a different market than a banana one store further, then probably not.
HRSE
CC BY-SA 3.0
2015-11-24T09:33:00.187Z
Wow - who would have thought that a question like this would have generated such a difference in opinion. I guess, in summary, you can't really go wrong as long as you can explain yourself.
Jamzy
<microeconomics><industrial-organisation><cost>
Should Costs of Travel to Buy Goods be Regarded as Transaction Costs?
Adam Bailey
# Should Costs of Travel to Buy Goods be Regarded as Transaction Costs?

(Asked by: username_0 on 2015-11-23)

Within the approach of New Institutional Economics associated with Oliver Williamson and others, emphasis is placed on *transaction costs* as a key factor in explaining why different forms of economic organisation arise in different circumstances. Transaction costs have been defined, eg [here](https://www.auburn.edu/~johnspm/gloss/transaction_costs), as including search and information costs, bargaining and decision costs, and policing and enforcement costs.

*Question*: Suppose I go to a supermarket that I know well, buy branded packaged goods of kinds that I have bought many times before, and transport the goods home. Should the cost of my travel to the supermarket and transporting the goods home, in this situation in which any elements of search, information gathering, etc are minimal, be regarded as a transaction cost?

**Tags:** microeconomics, industrial-organisation, cost

> **Comments:**
> **username_1**: Wonderful question as evident from the confusion below. Let me add something to this confusion: I think it depends on your definition on what constitutes a market for a good. If all bananas in the world are part of the same market, then it may (or may not) be the case that transportation costs are part of transaction costs. If a banana across the street is part of a different market than a banana one store further, then probably not.  
> **username_2**: Wow - who would have thought that a question like this would have generated such a difference in opinion. I guess, in summary, you can't really go wrong as long as you can explain yourself.  

---

## 4 answers

### Answer by username_5 on 2015-11-24. Score: 5 | Accepted answer

Since it was mentioned in an another answer let's clear this first: whether the transportation (and its time and monetary costs) should be associated with the intended consumption of the good you are going to purchase, or it can be considered as consumption on its own, depends on your subjective view of it: do you derive any form of pleasure by the trip itself? If yes, at least part of it should be considered consumption *per se*.

The consensus among economists appears to be that most of such travel is not considered by the consumers as utility-enhancing per se (although trends like "family-shopping on Saturday" may say a different story), and so it should be interpreted in a different way.

In the field of Industrial Organization, the good's distance from the consumer has been often treated as an aspect of *product differentiation*.

You could certainly treat it as a "transaction cost", by suitably define the scope of the concept. Personally I prefer to think of it as an *access* cost. I hit upon this concept in a little side-research I did in hedonic-price analysis.

If you start to think about it, all packaging and transportation costs *from the supplier to the shop* are also "access costs" from the point of view of the consumer. They don't provide any *direct* utility to him -they are obligatory costs that end up increasing the price, so that the consumer is able to acquire the good and enjoy the services/utility of the good itself.

Think computers: only the materials themselves and the technology embodied in them provide utility to you (plus maybe the brand). But the price includes all shorts of overheads, like the access costs I mentioned, or marketing costs (that can be seen as information costs or as the price to pay for competition and the innovation and product variety that brings along), etc.

> **Comments:**
> **username_4**: The only problem I have with this view is that transporting the good (travel) indirectly has a market through transportation companies that do it for you. Just as waste disposal is a good/service, even though I receive no utility from waste. In my view,  if there is a market for it,  it becomes a seperate good/service. I can purchase a good online without consuming it (no transportation) so transportation per se doesnt affect obtaining the good (legally). I can also buy a useless tennis racket without a ball and never consume the racket. Transportation affects consumption but not purchase.  
> **username_5**: @username_4 Goods and services are bundled routinely. What is a separate good to somebody, is an associated cost to some other good for somebody else. We are not talking about "transportation services" in general here, which certainly have market(s) on their own, and are utility-enhancing in many cases (say, sight seeing on an open bus, etc). We are talking about a specific action that must be undertaken (when it must) in order to purchase and consume a good.  
> **username_6**: There's always a market available in having someone else go to the store, buy the good, and bring it to my place of choice. If I buy a banana at the grocery store, the service of transporting the banana to the grocery store is bundled in the price. If I want the banana delivered to my home, I can do it myself, at some cost, or I can get TaskRabbit, Instacart, a random dude on Craigslist, the store's delivery service, a friend, etc... to deliver, which may involve different costs. The actual good we care about is a banana in my home, not the mere legal ownership of a banana somewhere.  

---

### Answer by username_3 on 2015-11-24. Score: 2

I very much like this question and username_5' answer.

We understand the role of transaction costs in the generation of externalities. But the transaction costs concept itself is very difficult to define rigorously. [Dalhman](http://www.jstor.org/stable/725216?seq=1#page_scan_tab_contents) (1979) examines what kinds of transaction costs are necessary to generate externalities. He defines a workable concept of transaction costs: search and information costs, bargaining and decision costs, policing and enforcement costs. But he adds (p. 148) that

> "this functional taxonomy of different transaction costs is
> unnecessarily elaborate: fundamentally, the three classes reduce to a
> single one-for they all have in common that they represent **resource
> losses due to lack of information**."

As far as I understand, in the international economics field, "costs of travel to buy goods" are considered as **trade costs**.

According to [Anderson and van Wincoop (2004)](https://www.aeaweb.org/articles.php?doi=10.1257/0022051042177649), p. 691-2

> Trade costs, broadly defined, include all costs incurred in getting a
> good to a final user other than the marginal cost of producing the
> good itself: transportation costs (both freight costs and time costs),
> policy barriers (tariffs and nontariff barriers), information costs,
> contract enforcement costs, costs associated with the use of different
> currencies, legal and regulatory costs, and local distribution costs
> (wholesale and retail).


---

### Answer by username_4 on 2015-11-24. Score: 2

Short Answer: No.

Transaction costs are defined as costs related to overcoming a market imperfection. Most people do not consider distance from a store(market) to be a market imperfection, but in some cases some do consider this.
It was always my professors' opinion that transaction costs should not include transportation costs and in what follows I'll tell you why.

With transaction costs we typically never mean transportation costs. Transportation is considered another good (rather a service) that we pay for. Transportation is a welfare/utility increasing good, which you would like to have. Therefore transportation has a positive price.

Transaction costs refer to costs that do not go towards obtaining more welfare enhancing (desired) goods and services.

In your supermarket example, the cost of searching for your desired good would be the transaction cost. Searching for it is costly, however does not provide you with any extra good/service/utility, so this cost is purely about obtaining another good and is a cost in addition to the price of the good and nothing more.

> **Comments:**
> **username_2**: I think this answer is incorrect. This definition includes transport: http://www.businessdictionary.com/definition/transaction-cost.html (admittedly I don't know much about this dictionary). I can't think of a reason distance to the market would not be a transaction cost.  
> **username_4**: The businessdictionary definition says transaction costs *may also* include transportation costs meaning that they also may not include them. In my answer I said that it may be ambiguous depending on your point of view. As for why its not a transaction cost, I gave the argument of transportation as a seperate service and not exclusively related to the exchange itself. You can buy something with no market imperfection before and regardless of how you will transport it (in the store).E.g. I have access to markets through Amazon and easily buy (legally become the owner) of goods far away from me.  
> **username_4**: @username_2 Continuing the example: When I purchase something online this goes well with or without transportation costs. So the transportation costs exist outside of my access to the marketplace. To actually obtain the goods, I or Amazon for me hires a separate service provider, i.e. the post or DHL,etc. to send me the goods. However I have access to the online market and can buy things regardless of where I am.  As I mentioned, it is my and my professors' opinion that transportation costs are not transaction costs, however I also said that opinions might differ here.  
> **username_2**: I suppose in many analysis it would be discretionary as to whether transaction costs are considered. It very much depends on the scale of the cost as to whether it is worthwhile. I don't see transportation to and from a supermarket as something fundamentally different from a credit card fee on a transaction. Merely an ancillary cost to the primary exchange.  
> **username_2**: Sorry, I don't quite follow your amazon example. Could you please clarify it.  
> **username_5**: You write "Transportation is a welfare/utility increasing good, which you would like to have". What is "welfare/utility increasing" is decided by the individual. If my desire would be to avoid the trip I have to undertake to buy the good, then the trip creates disutility, which in a monetized form essentially functions as a cost to be added to the price of the good. Alternatively, the consumer's budget to buy the goods is _net_ of such obligatory costs. This is why we don't usually travel 3.000 Km to buy a bar of chocolate that cannot be found nearer to us.  
> **username_4**: Since the trip creates disutility the transportation service creates utility  and as a service it can be viewed as a seperate good that is purchased. A perfect complement to the original good, but a seperate good nonetheless. 3000km would translate to an expensive transportation service. It is normal to not buy expensive goods of any kind including transportation which is why we don't travel 3000km for chocolate. The same way as a very expensive tennis ball may prevent me from buying a racket. This is a view often argued.I suppose there are other views as well.  
> **username_4**: Note that the value of transportation may exceed the price/cost of transportation (the post ships for a cheaper price than my disutility from going there myself). This cannot be the case with transaction costs, since with them nothing is gained purely from the transaction cost (seperately from the good) - no value created there by definition. Hence  value cannot exceed costs with transaction costs. People often choose whether to have furniture shipped or not so shipping can create value and isnt always necessary to obtain the good. One canot choose to incurr transaction costs however.  

---

### Answer by username_2 on 2015-11-24. Score: 1

Yes

A wikipedia definition:

> a transaction cost is a cost incurred in making an economic exchange (restated: the cost of participating in a market).

transport to a shopping center can definitely be considered a cost of participating in a market.

More intuitively, the idea of a transaction cost involves costs incurred on the consumer other than the direct price of a good.

This fits both the definition, and the intention of the definition.


---

