Transaction Costs and the Structure of the Market: A Case Study

A bstract Drawing upon the development of fish markets in a Chinese fishery community, this paper investigates the impact of transaction costs on the institutional structure of exchange. Fish markets in this region are connected and organized into a hierarchical network. This structure of fish markets dramatically reduces the cost for geographically distanced fishermen and consumers to execute trades. However, the provision of the market itself requires entrepreneurial el forts. In this study, the market is conceptualized as a continuum of middlemen, whose entrepreneurial efforts of buying and selling make the market work. When the middleman makes profits, the market is at work. Otherwise, the market fails to emerge. Comparing the different ways of organizing fish transportation at two distinct villages, this paper shows that the choice of the market or the firm to organize fish transportation is determined by the cost of putting the market to work.