In the transaction cost framework, we focus on identifying when we can't use market (3rd party) transactions with partners. The framework focuses on predicting when market will likely fail, and a firm must internalize the activity rather using 3rd party partners. Markets fail (because): In the transaction cost framework, we focus on identifying when we can't use market (3rd party) transactions with partners. The framework focuses on predicting when market will likely fail, and a firm must internalize the activity rather using 3rd party partners. Markets fail (because): Institutions exist to mitigate against loss so the need for trade between buyers and sellers disappears Information is freely available to all parties and hence no party can gain an advantage sufficiently large enough to warrant the trade Governments do not provide supporting laws to ensure trade occurs When the costs of transactions exceed the potential value of the exchange/transaction/activity