Market Quality Theory and the Coase Theorem in the Presence of Transaction Costs

Digital data is a new economic resource not only the ownership of which but also basic transaction rules on which has not yet clearly been established. As the importance of digital data increases, the Coase Theorem has become important once again. The theorem implies that once ownership is established for such a resource, an efficient allocation will be established in the resulting market if transaction costs are ignorable. This paper shows that in the world filled with transaction costs, ownership and other rules on market competition affect transaction costs, which in turn influences the quality of a market to form subsequently. If improper rules are adopted, it is expected to have a long-lasing detrimental effect on resource allocation and terms of trade determination.