Coase’s law – craze for collaboration explained

By June 17, 2007 5 Comments

In 1937  British socialist Ronald Coase published his seminal paper The Theory of the Firm in which he argued that business is done in corporations rather than through a multitude of peer to peer agreements because transaction costs are lower in corporations.  In particular they reduce the cost of finding other people to co-operate with and of contracting with them once they have been found.  (Check out the Transaction Costs section of this wikipedia entry for a fuller but still brief explanation).

By this argument companies got big because the search and contracting costs of e.g. finding new suppliers were high enough that it made sense to bring everything in house.

As we all know the internet has driven transaction costs through the floor.  Search costs in particular are fast headed towards zero.

The result?

A big improvement in the economics of collaboration.  It just got much cheaper.  This explains the recent craze for collaboration.

This argument comes from Wikinomics – and it makes a lot of sense to me.  So much so that when I read it I immediately wanted to post it here – a quick aid to understanding one of the key developments of the internet age.

However, as I came to the end of the post it suddenly dawned on me that I’ve never seen any data which shows we are collaborating more and in smaller groups these days.  In my water I feel it is true, but that isn’t the same thing as data.  So consider this post appropriately caveated and if you know of any good information on the subject please point me to it.