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The make-or-buy decision is a organizational and institutional decision problem regarding the question of whether to produce individual items and parts used in an internal production process as a company itself, or to externally procure those items and parts from third party suppliers. Besides the pure options or interal production and external procurement, different so-called hybrid modes for the organization of production/procurement are possible, e.g. temporal contrating of externally provided workers to produce items internally, franshising, etc..

Origin
Originally, the make-or-buy decision was formulated within the work "The Nature of the Firm" by Ronald Coase, which addresses the question of vertical integration of production and procurement. Building on that, transaction cost economics majorly developed the idea of the make-or-buy decision and investigates internal vs. external production/procurement against the background of compay governance.

Literature

 * Williamson. O. (1998): Transaction cost economics: how it works; where it is headed, Economist, Vol. 146, pp. 28-58
 * Benslimane, Y.; Plaisent, M.; Bernard, P. (2005): Investigating Search Costs and Coordination Costs in Electronic Markets: A Transaction Cost Economics Perspective, Electronic Markets, Vol. 15, No. 3, pp. 213–224
 * Jäger, C.; Wolke, C., Make-or-Buy Decisions - A Transaction Cost Theoretical Approach to the Assessment of Outsourcing Activities, September 2008, ISBN 3-8370-6459-X