For all this theory, there have been almost no direct tests of the Coase Conjecture apart from a handful of lab experiments. Ours is one of the first papers to take the conjecture to the real world. We look at e-books, an unusually clean setting: digital goods are durable, marginal costs are low, resale is limited, and prices can be changed quickly. Using the prices of e-books that are in the public domain as a proxy for marginal cost, we ask: (a) do prices rapidly fall to MC, and (b) does the market clear in the first period? The answer to both is no. E-book prices begin well above MC, sales continue over many periods, and prices don’t even decline monotonically.
We reject the Coase Conjecture decisively.
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