Abstract: The phenomenon of system catastrophe often occurs in a system with a network structure. A system’s resources can be utilized in two different modes: efficiently or inefficiently. When actions with inefficient mode pose no threat to other users or, in other words, when they employ resources that would otherwise be idle, they do not waste the system's resources at all. But when critical levels of inefficient uses of system's resources are reached, there is a sudden decrease in the capacity of the system due to the multiplication effect of inefficient factors. This collective inefficiency results in everyone getting worse in average. The common theme behind the catastrophe phenomenon demonstrates a possible explanation for the famous question about the choice between market and hierarchy. That is, when all firms pursue their own individual interests, resulting in a collective breakdown, they turn to consolidated ways of carrying out transactions.

Keywords: system catastrophe, collective efficiency, transaction cost, dynamic routing
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