Definition of Transaction cost

Transaction cost as it’s name is any cost incurred in making a transaction i.e. buying or selling. It includes all the cost and expenses required a bring an asset to it’s working condition or to sell an asset.

Brief Explanation of Transaction cost

• If buying or selling shares or securities, costs like broker fee, consultancy charges or intermediary fee are all included in it.
• If purchasing any other fixed asset, then along with communication fees and legal charges transportation charges to bring the asset to it’s working location is also included in it’s transaction cost.

Other factors include:

• While selling advertising cost along with agent and middleman cost is also calculated in it.
• Market research cost for price comparisons, quality measure and suggestions also included in it.
• Accumulation and calculation of it helps in making decision of whether to buy an asset or make it in house. (In case of tangible assets).
• It is normally included in the cost of asset because it is the direct cost that was incurred in bring the asset to it’s present position.
• Opportunity cost is also taken into account by some Analysts.