According to Williamson, three conditions must be met
before a corporation will prefer internalizing a vertical
transaction through ownership over contracting for the
transaction in the marketplace: (1) a high level of uncertainty
must surround the transaction, (2) assets involved in
the transaction must be highly specialized to the transaction,
and (3) the transaction must occur frequently. If there
is a high level of uncertainty, it will be impossible to write
a contract covering all contingencies, and it is likely that
the contractor will act opportunistically to exploit any gaps
in the written agreement—thus creating problems and increasing
costs. If the assets being contracted for are highly