The Cost of Immediacy
The inclusion of the ask-bid spread in transaction costs can be understood best by considering the neglected problem of "immediacy" in supply and demand analysis.
Predictable immediacy is a rarity in human actions, and to approximate it requires that costs be borne by persons who specialize in standing ready and waiting to trade with the incoming orders of those who demand immediate servicing of their orders.
The ask-bid spread is the markup that is paid for predictable immediacy of exchange in organized markets. Under competitive conditions the ask- bid spread, or markup, will measure the cost of making transactions without delay. A person who has just purchased a security and who desires immediately to resell it will, on the average, be forced to suffer a markdown equal to the spread found in the market place. This markdown (plus brokerage commissions) measures the cost of an immediate round-trip exchange.
Under less competitive conditions, this spread may somewhat exaggerate the underlying cost to those who stand ready and waiting of quick round trip transactions, but, for any given degree of competition (since brokerage commissions do not vary with the time taken to complete a transaction), differences in spread will indicate differences in the cost of quick exchange.
Harold Demsetz "The Cost of Transacting." Quarterly Journal of Economics 82, no. 1 (February 1968): 33-53.