ABSTRACT
This chapter investigates further the subject of the buyer as market-maker. As was discussed in Chapter 9, buyers seek to minimize prices paid but, with positive transaction costs, they may not want to ‘investigate’ the prices that would be asked by all potential suppliers. This observation led to the concept of the optimum number of invited tender-bidders, which was investigated in the previous chapter. It will be argued in this chapter that the oil companies have become the market-makers for many of the goods and services that they purchase from the offshore oil supply industry because this is the most transaction cost efficient means of pricing the idiosyncratic items which are exchanged. With idiosyncratic (or variable multi-attribute) intermediate inputs, both posted pricing and pricing on organized commodity exchanges are ruled out on grounds of high transaction costs.
