Oligopoly or Latent Efficiency: an analysis of transaction cost disequilibrium in commercial real estate investment in the US and the UK As part of a larger investigation into liquidity and efficiency in commercial real estate investment, this paper considers the question of transaction costs and transactional efficiency in commercial real estate investment based on interviews and case studies conducted in the US and the UK over an eighteen month period in 2007 and 2008. Based on responses received during a series of interviews in London, Atlanta and Chicago, and consistent with transaction cost economics theory concerning exchange governance structures and asset specificity, commercial real estate investment in both the US and the UK incorporates an exchange structure of networked third party intermediaries. These parties facilitate the exchange of property rights through networks of explicit and implicit contracts and expand the trading relationship from unilateral to bilateral exchange to effect an ìequilibrationî (Williamson 1985) of trading hazards. Private ordering and adaptive contracts allow the parties to the exchange to better mitigate uncertainty, attenuate unforeseen circumstances and resolve conflicts by utilizing social networks that forestall conflict and introduce reputation and reciprocity affects enforced through social capital networks. Given the specificity of the real asset being exchanged and the accompanying possibility of increased opportunistic behaviour, exchange intermediaries (agents and brokers) function to reduce the risk of opportunism and self interest on both sides of the exchange, the cost of this governance reflected in the explicit cost of the intermediary. While similar structures of exchange exist in both the UK and the US, however, it was further revealed that the structure of the intermediary role varied between the two markets, with a direct affect on the cost of the transaction. More than 30 one to one interviews were conducted with professional investors of commercial real estate in the UK and the US, and while most aspects of the exchange process are common to both national markets, one fundamental difference stood out. In the UK, both the buyer and seller are represented by a third party broker, while in the US only one broker ñ representing the seller - was typically employed. The cost of the additional agent in the UK process contributes directly to higher transaction costs. Is this transaction cost disequilibrium a product of greater rates of bounded rationality, increasing the risk of opportunism during the exchange, and thus necessitating the inclusion of an additional broker, at higher cost? Bounded rationality and asset specificity creates an environment in which opportunistic behaviour can contribute to hold up and defection on either side of the transaction. Intermediaries are utilized to mitigate the potential risk of opportunism during the exchange, but why would one market require two agents to the exchange, while in another parallel market, with similar institutional players and an equally expensive, complex system of litigation, only one is required? The paper will explore the issue of oligopoly on the commercial real estate investment market in the UK, but also consider the unique system of networks utilized by intermediaries in the UK, inquiring as to whether social network density and constraint variance may increase bounded rationality and necessitate the inclusion of the additional broker, at an additional cost, during the transaction. Interviews conducted offer some clues and suggest that the intermediaries in the UK may be distorting the exchange system, and limiting the flow of information and knowledge, while increasing the risk of opportunism, for purposes of arbitrage. As well, when social capital network theory is employed and social network surveys are administered and the individual social capital networks utilized by a small sample of institutional investment managers are interrogated in the US and the UK, differences observed in the reach, density and constraint of the networks interrogated may also help explain this transaction cost disequilibrium. This paper marks the first time transaction cost economics have been applied to the commercial real estate investment process, and a further first for the inclusion of social capital network theory as a means to unravel the mystery of transaction cost disequilibrium in commercial real estate investment markets in the UK and the US.