Has the Internet drastically reduced transaction costs as Paul Starr suggests? Let’s think about that. To an old print person like me, it seems that the drastic reduction has come in the variable costs of distribution and raw materials. Variable costs were like a tax on growth: double your readers, double the newsprint consumed. For electronic media, practically all of the costs are fixed, making growth virtually free.
When Ronald Coase introduced the concept of transaction costs in 1937, he was trying to understand why we need business firms with hierarchical, command-and-control structures. Without them, we could envision an environment in which every worker was a freelancer. But then each action that required cooperation would be subject to individual negotiation. Putting all these contacts in the structure of a firm minimizes that overhead.
The need to minimize transaction costs is also a reason that newspapers evolved toward natural monopoly. Buyers and sellers needed a single marketplace to make it easier for them to find each other.
Maybe we are starting to see Internet users organize themselves for the same reason. In its raw form, the Internet tends to increase transaction costs because the great volume of information makes it difficult for specific content creators and consumers to cut through the noise and find each other. Now a reputational hierarchy is forming where sites like Cato Unbound or the Huffington Post find ways to originate, aggregate, and organize content for particular publics.
Are they creating these publics or just responding to publics that already created themselves? The idea of shifting issue publics that form themselves in response to events can be traced to political scientist Philip Converse in 1964. Perhaps the Internet’s contribution is that it facilitates the formation of these issue publics, makes them more stable, and potentially more potent. It sounds like a researchable question.