We have initiated a second series of Stinson Analytical reports — A World of Order: Applying the Economics of Order. In our first series of reports, Networks & Platforms: The Economics of Order, we laid out not only a new approach to analyzing and understanding networks and platforms but also the fundamentals of a new economic framework, one that determines and integrates the source and nature of “order”. The intention in our second series is to apply the framework we developed in the first series to more specific market contexts and to generate insights missed by standard economic theory because of the latter’s failure to address the creation and foundation of order.
We begin with two reports.
The purpose of the first report, Ordered Abundance: Commodity Markets, Oil, Cartels, Coordination & the Dynamics of Market Breakdown, is to shed light on the dynamics of the oil market over the last several years and, in particular, the precipitous and unexpected fall in oil prices in the last quarter of 2014 and the prolonged uncertainty and market turbulence since. We begin by setting out a stylized model of the oil market and the nature of economic coordination prior to an assumed technological change. We then demonstrate how a particular form of market-driven technological change can lead to what we have previously termed “market breakdown”. Market breakdown is an unexpected abrupt decline in the network homogeneity of a market or, in other words, a collapse of the market consensus. We believe that this dynamic best characterizes the volatility of oil market in recent years. While the specific context is the oil market, our analyses of the processes of economic coordination and subsequent discoordination also have implications for other commodity markets. As is typical with our reports, our analysis also highlights shortcomings of mainstream economic theory and has important implications for policy — in this case, antitrust policy. A downloadable table of contents (TOC) is available here.
The second report in our new series, The Magic of Variety: Product Differentiation, Markup, Sunk Cost Recovery & Network Homogeneity, examines the implications of our new economic framework in markets characterized by product differentiation or “monopolistic competition”. Our conclusions differ greatly from those of standard economics and highlight not only our framework but the effects of the mainstream errors. As we have noted before, mainstream economics tends to assume the prior existence of markets or take them as given. It ignores the fact that the structure of an emergent market is itself the product of the market process. Market structure is the product of the preferences and actions of individuals. The structure of an emergent market cannot therefore be inconsistent with individual preferences. In fact, it acts to serve them. Our analysis in this report expands on these and other points. A downloadable table of contents (TOC) is available here.
Please do not hesitate to contact us if you have any questions regarding these or any of our other reports.