Understanding Commodity Price Volatility Mitigation from Transaction Cost Economics: Preliminary Results

Abstract

Most firms are exposed to price volatility associated with commodities, which can significantly affect the price paid for raw materials, energy and component purchases. The purpose of this paper is to examine how organizations mitigate the risk of commodity price volatility (CPV) in their organizations and supply chains. Initial findings from case studies support prior theory that as uncertainty and risk increase, organizations are more likely to create hierarchical structures to manage the effects of CPV. Likewise, when CPV does not pose a significant risk, there appears to be a greater use of approaches to offset or pass this risk to markets or other supply chain actors