Reinventing the Bazaar: A natural History of Markets by John McMillan. Chapter 4

A. I found it interesting that McMillan made the point that when information is not free, prices will be set high but not because of collusion.  Prices stay high because of lack of  information and the merchants do not have a need to collude.  These prices are also kept high by search costs which make searching for lower costs not worth it.  I found it surprising that McMillan referred to the market merchants as a "little monopolist" that pulls in large profits because I have always thought of merchants as poor.  I can recall experience with search costs and evaluation costs while trying to shop in the Market in Istanbul.  I recall my family  being approached by a man in the market who persuaded us to come look a shop.  He led us deep into the market to a shop that we would have never bought from because we would have ran into countless other shops on the way to that one.  The man serves as matchmaker to reduce search costs.  But at the same time the man didn't necessarily take us to the cheapest shop, we would have little way to know.  So really the man was exploiting the lack of information in the Turkish Open market.

B. By transaction costs, the author is referring the costs of evaluation of search present in the market.  These costs come together and prevent the consumer from doing extensive research of the price levels in the market.  This keeps price levels high.  For example it is very costly in time and energy to navigate the closed market in Turkey.

C.  Imperfect information leads to market failures of efficiency.  In the example of the market, it is inefficient to look for information so prices are higher than the market price would be if there was perfect information.  In the market, the consumer loses because prices are much higher than they should be.  Also, Mcmillan describes how the suppliers become losers because of lack of info if they try to lower their price.  Because consumers will not recognize the price advantage on a wide scale, the merchant will lose money.  So there is a actual incentive to keep prices high besides trying to overcharge tourists.