Ronald Coase’s 1937 article, “The Nature of the Firm,” observed that rational economic actors decide whether to “make or buy” depending on whether the transaction costs of assembling factors of production inside a firm’s boundaries are less than the transaction costs of assembling them in the external marketplace. Michael Heller’s 1998 Harvard Law Review article, “The Tragedy of the Anticommons,” observed that fragmented ownership of goods and services increases transaction costs for those who want to combine.
In a series of law review articles — Henry H. Perritt, Jr., New Business Models For Music, 18 Vill. Sports & Ent. L.J. 63 (2011); Henry H. Perritt, Jr., Technologies of Storytelling: New Models for Movies, 10 Va. Sports & Ent. L.J. 106 (2010); Henry H. Perritt, Jr., Cut in Tiny Pieces: Ensuring that Fragmented Ownership Does Not Chill Creativity, 14 Vand. J. Ent. & Tech. L. 1 (2011); The Internet at 20: Evolution of a Constitution for Cyberspace, 20 Wm. & Mary Bill Rts. J. 1115 (2012); Henry H. Perritt, Jr., Competitive Entertainment: Implications of the NFL Lockout Litigation for Sports, Theatre, Music, and Video Entertainment, ___ Hastings Comm. Ent. L. J. ___ (in press); and Henry H. Perritt, Jr., Crowd Sourcing Indie Movies (forthcoming) — I argue that Internet-centered technology developments are reducing the size of economically sustainable units of production in the entertainment industries, broadly defined, thereby reducing barriers to entry and allowing almost anyone with a creative bent to access global markets. The result, however, is greatly increased transaction costs, both for consumers who want to find entertainment that appeals to them, but also for other creators who want to combine what’s available into new creative works. (more…)