Transaction cost theory (TCT) holds many implications, including for small and medium enterprises (SMEs). The discourse of transaction costs can even be found in the beginnings of classical political economy, but it was later overlooked upon the rise of the neoclassical theory of the firm, which is essentially and intrinsically connected to the assumption of perfect competition. In neoclassical theory, a medium-sized firm within a perfectly competitive market plays a paradigmatic role, large firms included. Although markets in perfect competition function perfectly and without any transaction costs, TCT might still be applied to them. On the other hand, Post Keynesian theory builds its paradigm on a large oligopolistic firm (megacorporation), viewing SMEs only as their competitors. The distinction between SMEs as competitors and SMEs as subcontractors of big corporations (network hubs) is emphasised. While neoclassical theory views this relation within a marginal cost/benefit apparatus, Post Keynesian theory stresses the importance of institutional arrangements. The inferior position of SMEs as subcontractors is demonstrated by the price relations between them and the growth perspectives of SMEs.
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