I recently visited the Bellwether Garage — a small, zero-priced concert venue in Richmond, Virginia — and was startled by how interesting the venue was. The Bellwether, squirreled away among the residences of Church Hill, is also a functioning motorcycle garage. More importantly, the Bellwether shows how people in civil society deal with transaction costs and devise innovative solutions to their problems.

While I was enjoying the concert, I started to wonder how it all came to be. How on earth did dozens of people convene at a little motorcycle shop, not for motorcycle repairs, but for an evening concert? Capital is heterogeneous and multispecific, but what are the conditions under which these capital goods are used for different purposes? This coordination is not easily apparent. Bellwether concerts are not professionally managed — like a Taylor Swift concert — but coordination is required to schedule the artists, arrange the stage, secure street access, and so on. The event ran smoothly, and concertgoers were welcome to bring a chair and beer, enjoy the evening, and support the artists. 

Following Michael Munger (knower of important things and host of The Answer is Transaction Costs podcast) the answer to my puzzle is transaction costs. Bellwether concerts are possible because the transaction costs of transforming a motorcycle shop into a concert venue and organizing a concert are low.

In Tomorrow 3.0, Munger points out that many of the goods we own are unused because alternative arrangements are too costly. Think about your car. We use our cars as we like, and we might rent them out when we are not using them. Yet, we do not often do this because the transaction costs of renting our cars to willing and trusted individuals often outweigh the rewards.

As Munger notes, “…costs depend on the particular circumstances of time and place for that commodity and that transaction.” For many transactions, the costs of making a deal often outweigh the benefits. Searching for willing and trusting buyers of one’s car while not in use is costly. And shipping the car can be expensive, especially over long distances. Negotiating agreements about how long they can have the car, how many miles they can go, how clean the car should be when it is returned, and so on, are all costly activities.

To see the problem Bellwether faces, imagine artists or concert producers who have either the ability to perform or access to performers. They have the tunes, but they don’t have the space to host concerts. And imagine concert venues who have the space, but they don’t have the talent. If these two parties can make arrangements, we have ourselves a show. But finding willing partners, negotiating on terms, and abiding by agreements is costly. Agents and concert producers might act as middlemen, but it can still be costly to coordinate these endeavors.

For Bellwether, these costs seem low as the concert producer and garage-venue owner are the same person. The owner knows how to promote and organize a concert to avoid any conflict that might arise from managing a motorcycle garage. Similarly, the “storage” costs of the concert venue while not in use is low because the venue is transformed into a garage and vice versa for the costs of storing the garage. I recall that the owners live nearby, which also helps to lower transaction costs related to managing the space. With the help of social media the owners can also easily organize and promote concerts. 

Bellwether faces another problem related to collecting revenue and securing local governmental permits, which also relates to transaction costs. To legally provide these concerts, Bellwether blocks off a portion of the street to prevent traffic; this requires a costly permit. In a recent post, the owners state, “As our gatherings have grown, so has the need for block party permits each month…covering permit costs each month is a bit beyond our budget for these shows.” 

The real problem here is that it is costly for Bellwether to seek compensation. Charging for tickets might seem reasonable, but these concerts are not produced to maximize profits. Even if Bellwether wanted to charge concertgoers for admission, it is not clear they could. As concertgoers can enjoy the show from a block or two away, they might choose to freeride. Hiring people to sell tickets and shoo away free riders might not be worth it; and it might detract from the atmosphere. 

Given these challenges with collecting revenue, Bellwether is experimenting with a lower cost option, namely sponsorship. If sponsors can cover the costs associated with permits, Bellwether will not have to charge and monitor entry fees. This approach seems effective because Bellwether can make arrangements with individual sponsors, wherein everyone’s incentives are aligned. With financial sponsors, Bellwether gets their permits; the city is satisfied; sponsors receive the benefits of advertising or good will; and concertgoers can have their performances. 

Transaction costs seem high for small concert venues, as there are few entities like Bellwether. Yet, Bellwether manages to keep transaction costs low, which encourages people to coordinate, schedule repairs, attend concerts, and address problems as they arise.