transaction costs


In the course of our policy work related to big data, we discussed first-degree price discrimination: At a more abstract level, the problem is one of first-degree price discrimination. First-degree price discrimination, or person-specific pricing, has not been practiced or observed because it was not possible to discern reservation values. This constraint may be in the process of being overcome now that capabilities exist to analyze individual behavior as recorded in multiple transaction-generated data sets (Shiller, 2014). Big data and electronic commerce have reduced the costs of targeting and first-degree price discrimination. It is argued that the increased availability of behavioral data may encourage a shift from third-degree price discrimination towards personalized pricing (Executive Office of the President of the United States, 2015).
Senior Research Fellow Payal Malik has co-authored an op-ed on surge pricing in the taxi market that addresses some key issues of platform markets. The distinguishing feature of platform markets is the lowering of transaction costs through the use of ICTs. State action to prohibit such applications is retrograde. Instead, what should be done is to remove no-longer-justifiable constraints such as rigid and limited issuance of licenses. The state fixes two parts of the taxi market.
We at LIRNEasia have always seen transaction costs at the heart of much of what we do. Our interest in ICTs in value chains, for example, has been focused on changes to transaction costs made possible by ICTs. This fascinating article on the business models underlying cloud computing foregrounds the scale economies perfected by the likes of Amazon. But perhaps the real story is in the negligible transaction costs of billing? This economics of tiny things demonstrates the global power of the few companies, including Microsoft and Google, that can make fortunes counting this small and often.
I was going to respond to an anti Airbnb/Uber/Lyft rant by Morazov, but other things got in the way. Apparently, some guy has done the same thing against Tinder on Vanity Fair. Farhad: I’ve got to say, though: Tinder had a point about the Vanity Fair story. Not only did it adopt a tone of high moral panic about dating apps — it compared their effects to the melting of the polar ice caps and the “Sixth Extinction” — but as New York Magazine’s Jesse Singal pointed out, the article was even factually suspect. Sociological research suggests that millennials like yourself appear to have fewer sexual partners than previous generations.
It’s good that work has started on mapping out who will benefit by renting out excess capacity on assets controlled by consumers and small businesses. We have been kicking around these ideas within LIRNEasia for a while. Hopefully will get started on a project to understand how these things play out in the “real world,” as stated below. “I wasn’t the kind of person who went around everywhere in black cars,” he says. “It felt good, it felt like I was living someone else’s life.

Ronald Coase, 1910-2013

Posted by on September 3, 2013  /  0 Comments

The man who introduced the concept of transaction costs, proposed a solution on dealing with problems of externalities and was one of the first to propose applying market solutions to spectrum allocation is no more. I first read his work on spectrum, since one of my teachers, Dallas Smythe, was a vociferous opponent. Then I read his classic piece on “The nature of the Firm.” That impressed me. Looking back I think that reducing transaction costs has become a governing principle of my life.
I have heard many absurd proposals related to the mobile industry, but this about takes the cake. Pakistan’s government is considering a radical plan which could dramatically alter the mobile phone industry in the country – as it mulls proposals to ban Prepaid SIM cards from sale. The Interior Minister Rehman Malik said that the government is considering a phased ban on all prepaid SIM cards in an effort to clamp down on terrorism in the country. However, with something in the region of 97% of the entire mobile subscriber base on PrePay tariffs, the impact on the industry would be huge. In addition to the costs of upgrading billing systems to cope with the surge in contract customers, and having facilities in retail stores to cope with the migration – the networks would also face a hole in their finances as payments switch from in advance, to monthly in arrears.
LIRNEasia’s research on agricultural value chains is in the press. Nilusha Kapugama’s response to a feature on one of the most successful rubber smallholder cooperatives has been carried in the Sunday Times. It covers the topics of start-up costs, law and order issues and the high transaction costs that prevent more auctions being conducted (and Padeniya not expanding): Our research included conversations with a key mover in the Padeniya Thurusaviya society, Mr Berty Lionel. We agree that Padeniya is a great success. Where we differ is on the likelihood it can easily be replicated across the rubber-growing areas.