PRICE DISCOVERY INCLUDES DISCOVERING, AND CONSERVING ON, TRANSACTION COSTS.

 That's two Cold Spring Shops themes neatly bundled in one Caleb Fuller essay.

Transaction costs arise when exchanging parties take steps to mitigate the threat of opportunistic behavior. As [Yoram] Barzel notes, a buyer has an interest in inspecting a good’s “attributes”—its size, quality, freshness, color, or similarity to other units—in order to verify that what is given up in exchange is perceived as less valuable than what is gained. (Resources that consumers perceive as having different attributes are different goods in the Mengerian approach). However, “measurement” of a good’s attributes is costly. The “problem” with measurement is that its costliness, unlike the money price, does not accrue to the exchange partner’s benefit. Relative to a perfect, Nirvana world where measurement is unneeded, measurement costs are pure waste! This suggests that buyers and sellers could affect exchanges at a higher net price if they could agree to a low-cost means of rendering measurement activity superfluous. Sellers would gain by receiving a higher money price; buyers would gain if the increase in the money price is less than the reduction in measurement costs. How then can exchange partners reduce measurement costs and enjoy these gains?

The frictionless world of textbook "perfect" competition makes most of these difficulties go away by starting with identical products offered by identical sellers using identical technologies, in part because that story works tolerably well, in part because if you try to introduce transportation or search costs (there are a few overlaps, and more than a few subtleties) too soon, it gets even more confusing than even the standard price theory approach often is, and in part because it's convenient for technocratically inclined academicians to bring in the reality in the form of "market failures" that "warrant government intervention," which is not at all the case.  (That approach is the Democrat tax code instruction manual, it's also a convenient way to keep economists in side gigs as policy consultants.)

In that world, anything that doesn't look like what A. C. Pigou or Paul Samuelson drew up on a blackboard, or what Kenneth Arrow or Joseph Stiglitz showed to be first-best-optimal by a rigorous argument, maybe in Hilbert space, must be some nefarious plot to separate people from their money.  It gets even more lurid if diamond merchants are involved.

One possibility is for sellers to do something which makes it in the buyers’ best interests to refrain from expending resources on measurement. Perhaps counterintuitively, one way to achieve this goal is to raise a buyer’s cost of measuring, so that less of it is undertaken. Barzel offers a few illuminating examples. DeBeers, once the owner of a large majority of the world’s diamonds, interacts with its distributors only on a somewhat curious, “take-it-or-leave-us” basis. After having assessed a potential diamond dealer’s request, DeBeers will present the distributor with a package of diamonds that roughly matches the description. Next, the buyer is asked to make a choice: Make the purchase or forgo dealing with DeBeers ever again. Instead of seeing nefarious market power inherent in the “take-it-or-leave-us” offer, Barzel argues that this practice reduces the sorting and negotiation costs that buyers would otherwise incur.

The curious practice of the movie studios, back when there were only a few movie studios, requiring movie houses to consent to show all of the studio's offerings, might have had a similar purpose.

Taken together, discovery of efficient institutional arrangements, discovery of efficient bundles, discovery of the relevant price, it's all the same calculation problem.  "Along the same lines, in free markets, the decision about whether to implement a measurement cost reducing arrangement is also subject to economic calculation. Certainly, the opportunity to participate in exchanges where the distribution of goods’ attributes is narrower is a benefit to buyers who can spend less time and fewer resources inspecting."