Hierarchies such as large music companies and their distribution networks are no longer able to achieve the lowest transaction costs in the recording industry. The low costs of communication and distribution have made the market more efficient, and millions of individuals benefit as a result. After the invention of the tape recorder, copying music became technically feasible, but of course the network effects were very limited: The song had to be played while it was being copied, and distribution was limited to a few local friends who had tape players. Computers and the internet nowadays mean that a song(s) can be copied very quickly, and distributed, theoretically (if not always legally) at least, to a multitude of other users in a few seconds.
When contrasted with traditional bookmaking firms, Betfair is a fine example of the potential of low cost, networked computing to make markets more efficient by lowering transaction costs. Traditional bookmakers need to be well informed (studying horseracing and sporting events carefully) in order to make odds, and need to monitor market changes constantly in order to avoid being taken advantage of, or of being over-exposed. Betfair simply provides the platform for many individuals (theoretically, “firms of one”) to do this for themselves. These individuals do not have to rent space or equipment, advertise, or employ staff. With a click of a mouse they can essentially either do what Ladbrokes or William Hill does – or, if the fancy takes them, play their fancies.
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