Changes

Coase’s brilliant observation was as follows.  He said that, in the absence of transaction costs, there is the same amount of desired economic activity regardless of who owns the legal rights or property or money.  There will be the same number of images of Mickey Mouse regardless of whether Disney still owns the copyright or not.  The same number of fans will attend New York Yankees baseball games regardless of whether George Steinbrenner owns the seats at Yankee stadium or 57,478 random members of the public do.  The same amount of Microsoft products will sell regardless of whether Bill Gates is the richest or poorest person in the world.   

Coase’s brilliant observation was as follows.  He said that, in the absence of transaction costs, there is the same amount of desired economic activity regardless of who owns the legal rights or property or money.  There will be the same number of images of Mickey Mouse regardless of whether Disney still owns the copyright or not.  The same number of fans will attend New York Yankees baseball games regardless of whether George Steinbrenner owns the seats at Yankee stadium or 57,478 random members of the public do.  The same amount of Microsoft products will sell regardless of whether Bill Gates is the richest or poorest person in the world.   

[[Ralph Waldo Emerson]] once said, “Build a better mousetrap and the world will beat a path to your door.”  In the absence of transaction costs, it does not matter if you are rich or poor in determining how many will buy the mousetrap and what they will pay for it.  The economic activity of selling mousetraps is determined how desirable the mousetrap itself is, not who owns rights to it or how wealthy the inventor is.  The person who owns the mousetrap will profit from it if it is better than the competition, but the same number of mousetraps will sell regardless of who owns it.

[[Ralph Waldo Emerson]] once said, “Build a better mousetrap and the world will beat a path to your door.”  In the absence of transaction costs, it does not matter if you are rich or poor in determining how many will buy the mousetrap and what they will pay for it.  The economic activity of selling mousetraps is determined by how desirable the mousetrap itself is, not who owns rights to it or how wealthy the inventor is.  The person who owns the mousetrap will profit from it if it is better than the competition, but the same number of mousetraps will sell regardless of who owns it.

This observation of Coase (and Emerson) is true only when there are no transaction costs.  That means there is no time or expense lost in bargaining, or finding the mousetrap in the first place.  No advertising expenses, for example.  No incidental expenses can exist in connection with buying a good or service.  Using these assumptions, people get what they want with additional expense, and trade however they like without further cost.  Although it may seem unrealistic to assume there are no transaction costs, it is very useful to start with this premise.  Some activities, like trading stocks over the internet, do have very little transaction costs.

This observation of Coase (and Emerson) is true only when there are no transaction costs.  That means there is no time or expense lost in bargaining, or finding the mousetrap in the first place.  No advertising expenses, for example.  No incidental expenses can exist in connection with buying a good or service.  Using these assumptions, people get what they want with additional expense, and trade however they like without further cost.  Although it may seem unrealistic to assume there are no transaction costs, it is very useful to start with this premise.  Some activities, like trading stocks over the internet, do have very little transaction costs.