Clajon Gas Co., L.P., Aquila Gas Pipeline Corp., Tax Matters Partner - Page 33

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          companies choose to produce some goods or provide some services             
          for themselves and contract with outsiders to provide other goods           
          and services.  Coase explained that relative market prices are              
          not the sole factor; transaction costs also affect the decision.            
          The nature and amount of those costs, Coase theorized, frequently           
          determine whether a company will seek an outside supplier or                
          service provider or itself supply the item or perform the                   
          service.3  Whatever decision a gas well owner/operator/producer             
          firm makes in any particular case,4 there is a significant (for             

               3See Easterbrook, “Derivative Securities and Corporate                 
          Governance,” 69 U. Chi. L. Rev. 729, 729-730 (2002); Tedeschi,              
          “E-Commerce Report,” N.Y. Times C12 (Oct. 2, 2000).                         
               4A generic description of a range of possibilities similar             
          to those in the case at hand is found in Joskow, “Asset                     
          Specificity and the Structure of Vertical Relationships:                    
          Empirical Evidence”, in Williamson & Winter, Eds., supra note 2             
          117, 119:                                                                   
               there is a wide range of institutional arrangements                    
               that can be used to govern transactions between                        
               economic agents.  Specific institutional arrangements                  
               emerge in response to various transactional                            
               considerations in order to minimize the total cost of                  
               making transactions.  The boundary between a firm and a                
               market provides a very rough distinction between the                   
               two primary institutional mechanisms for allocating                    
               resources, but this is the beginning, not the end, of                  
               the inquiry.  Firms can take on many different                         
               organization structures.  Market transactions can take                 
               many different forms ranging from simple spot                          
               transactions [sale at the wellhead for a fixed price]                  
               to complex long-term contracts [various sharing                        
               arrangements present in this case and described in                     
               Tenth Circuit opinion in Duke Energy II].  The specific                
               set of institutional arrangements chosen would                         
               represent the governance structure that minimized the                  
               total cost of consummating the transactions of                         

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