Noah Mancino

Ronald Coase argued that in a world without transaction costs, the initial allocation of property rights would not matter for efficiency. Digital platforms have dramatically reduced certain transaction costs — but have they vindicated Coase, or revealed the limits of his framework?

The Theorem in Brief

The Coase Theorem, as it is commonly understood, holds that if property rights are well-defined and transaction costs are zero, private bargaining will lead to an efficient allocation of resources regardless of how those rights are initially distributed.

“The cost of exercising a right is always the loss which is suffered elsewhere in consequence of the exercise of that right.”

This is an elegant result. It is also, as Coase himself acknowledged, a starting point rather than a conclusion. The interesting question was always: what happens when transaction costs are not zero?

Digital Platforms as Transaction Cost Engines

Platforms like Uber, Airbnb, and Amazon Marketplace are, at their core, machines for reducing transaction costs. They solve search problems, establish trust through ratings, and standardize contractual terms.

But they also introduce new forms of friction — algorithmic opacity, platform lock-in, and information asymmetries that favor the platform operator over participants on either side of the market.

The Limits of the Framework

The deeper issue is whether a framework built around bilateral negotiation scales to the multilateral, networked reality of digital markets. When a platform mediates between millions of buyers and sellers, the Coasean model of two neighbors bargaining over a fence starts to feel quaint.

This does not make Coase irrelevant. It makes him essential — precisely because his framework clarifies what we are giving up when we move from negotiation to platform governance.