To answer the question is necessary to discuss what is meant by friction and to discuss how ICT can reduce these frictions.
The transaction costs model discusses the effects of human and environmental factors on the exchange of good and service. These effects reflect the imperfection of the mechanism in allocating resources on the basis of the price-quantity relationship. There is always some information-related problem that makes it difficult, and therefore expensive, to finalise the transaction. This imperfection can be described as frictions in the market mechanisms. In the transaction cost model, information technology is seen as a factor that can decrease the costs of transacting, thus improving the functioning of the market or sustaining market-like forms of organisation. ICTs are therefore lowering the costs of gathering information, evaluating alternative options, negotiating and contracting.
A proper answer will discuss how ICT can reduce the transaction costs by looking at the general theoretical framework. An excellent answer will instead discuss in details how and under which circumstances ICT can reduce the specific transaction costs which affect the different phases of the transaction costs.
