The Price System and the Economic System

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The size of firms will be determined over time by transaction cost. If it's cheaper to buy things in the market, then firms will shrink. The margin between owning and sharing will be determined by transactions cost. People who live in cities are going to be able to participate in the sharing economy. It is hard to imagine any way of being able to commodify an electric toothbrush if its costs are too high.

Economist and author Michael Munger of Duke University talks about his book, Tomorrow 3.0, with EconTalk host Russ Roberts. Munger analyzes the rise of companies like Uber and AirBnB as an example of how technology lowers transactions costs. Users and providers can find each other more easily through their smartphones, increasing opportunity. Munger expects these costs to fall elsewhere and predicts an expansion of the sharing economy to a wide array of items in our daily lives.