The costs of using markets or other institutions to exchange: searching for partners, bargaining, writing, monitoring and enforcing agreements.
In more detail
Ronald Coase introduced the idea in 1937 to explain why firms exist; in 1960 he argued that if transaction costs were zero, parties would bargain to efficient outcomes whatever the assignment of rights, so in practice the law's allocation of rights matters. Oliver Williamson developed transaction cost economics, linking asset specificity, uncertainty and frequency to the choice between markets, hierarchies and hybrid contracts. Douglass North treated institutions as devices that reduce the transaction costs of exchange. Digital platforms, smart contracts and DAOs are often justified as ways to lower transaction costs, though they create new ones.