Coase theorem on the Internet

Read Levitt's idea here and my comment below.

I suspect your inquiry is a little bit problematic. As you mentioned, the Coase theorem predicts people who evaluate the object with highest value will obtain the property right of that object, regardless of initial allocation and without transaction cost. However, in your question you stated…

What URLs seem like they should “logically” take visitors to one place…

By which you implicitly assuming you know the rank of people’s evaluation. For example, in your post you assume American Airline would value the URL more than American magazine. It is easy to give some counter examples of this. For instance, American Airline already built their reputation, and people who want to purchase a ticket will not easily give up when they found www.american.com is not the destination they thought. However, for a new magazine, they need to broaden their potential reader. They may hope people can find them easily by just typing in american.com, or they want to take advantage on those who wrongly entered american.com. In such case, I think its hard to say which one would value the URL more.

Not to mention the role of zero transaction cost assumption that the Coase theorem built upon. If American Airline does value the URL higher, it won’t be surprised if we found the American magazine is an URL holder, or the founder of American magazine is a good friend of a URL holder who owned the URL, or thousands of other stories about how transaction cost can be huge there to prevent American Airline to acquire that URL.

To sum up, the best examples that you try to find about the Coase theorem failing on the web, should in fact be the best examples of Coase theorem success on the web. Those examples give us an idea about how different between what we think of people’s evaluation on certain URLs and how they really evaluated those URLs. Or they give us an idea that how transaction cost could affect the virtual world!