The fifth report in our series dealing with networks, platforms, markets and the economics of order (pdf, 34 pages). Details below, with a link to a downloadable pdf table of contents.
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The previous reports in this series (Networks & Platforms: The Economics of Order) have stressed the users’ perspective – the characteristics of demand, the source of value to users, the interplay of user preferences with network size and stability, network formation, the needs satisfied by networks and other mechanisms of coordination, and other related topics. In this, our fifth report, we examine the implications of networks for (a) the supply not only of network goods but of goods in all markets, (b) risk and (c) supplier costs. As far as we are aware, no one has, until now, addressed or even recognized the fundamental connection between networks and supply. Addressing the role of networks in supply and incorporating a more sophisticated understanding of the interplay between supplier decision-making, cost causality, capital choice and risk also reveals the fundamental dynamic of which the standard textbook short-run/long-run dichotomy is a clumsy approximation. In the process, our analysis yields a comprehensive remaking of the supply curve and begins to make clear that networks are the foundation of the market order.
The New Economics of Order