Coase and the Platform Economy

Abstract

This Chapter analyzes the ways in which digital platforms such as Uber and Airbnb are perfecting the deal and lowering transaction costs. The chapter argues that the three stages of pre-deal, deal-making, and post-deal, 1) search costs; 2) bargaining and decision costs; and 3) policing and enforcement costs, may benefit from the digital platform. Each stage depends on enhanced information and optimal matching to reduce costs. The chapter suggests that the platform – based on digital large scale multi-sided networks and sophisticated algorithmic pricing – impacts the relevant transaction costs at all three stages. It then argues that regulators must consider the opportunities that come from the platform delivery as well as the possibility that certain traditional regulations become redundant by platform innovations.

Keywords: Coase Theorem, Platform economy, digital platforms, transaction costs, search costs, bargaining costs, decision costs, policing costs, enforcement costs, independent contractor, employee, regulation, employment classification, platform economy

JEL Classification: D00, D40, D50, D80, E20, E30, K20