Interdependence in consumption also causes market failure, and the Internet experiences that phenomenon as well. 5. The market will fail if there are economies of scale in production of Internet services. Many people in the industry say that economies of scale do exist. The market will fail if there are indivisibilities in investment. Indivisibilites in investment exist if one factor, such as capital investment, has to be used in large indivisible doses, in big chunks, so to speak.
Efficient markets require that all factors be able to be varied by small amounts.
It seems likely that the Internet experiences indivisibilities in capital investment. The market will fail if there are large transactions costs associated with it. One type of important transactions costs are the costs incurred in enforcing property rights. Property rights enforcement may be very difficult on the Internet. The nature of information as a good is central to any analysis of the economic and social importance of the Internet.