Markets from Networks: Socioeconomic Models of Production (review)

Phædrus, the central character in Robert Pirsig's Zen and The Art of Motorcycle Maintenance, championed a "metaphysics of quality." Phædrus argued that quality was a foundational element of experience — making sense of our basic perceptions of the world around us. Though maddeningly difficult to define, a world without quality was literally impossible to comprehend. Phædrus would have liked Harrison White's new book. White develops a sociological model for economic production that places quality at the heart of the production practices of firms.

Markets from Networks is the culmination of White's work on production markets since the late 1970s. White sets aside ephemeral notions of "supply and demand" in favor of a model resting on firms' perceptions of the practices of other firms in the market. The basic production problem facing firms lies in maximizing profits by determining the volume and quality of goods to produce. Looking to the practices of structurally equivalent firms, markets can be seen as sets of producers distributed along a quality-by-volume array. Markets can only sustain production within the bounds set by the quality-volume schedule, which is shaped by buyers' insistence on consistent returns to quality by price. The simple beauty of the model lies in firms' ability to see this market profile. Because most production markets are characterized by a small number of firms, it is possible for firms to monitor the production of firms around them, and identify a sustainable production schedule.

Market profiles come in families, since production schedules can take a variety of functional forms. The key dimensions for identifying families of markets rests on the relative sensitivity of producers and buyers with respect to product volume and quality. Thus, White develops a "market plane" defined by the ratio of buyers'-to-sellers' sensitivity to volume and quality, which is further divided by a market-shape parameter that captures an industry's history. The plane allows one to characterize markets based on the trade-offs associated with returns to producer cost and buyer demand with respect to both quality and volume. The result is an incredibly useful theoretical space upon which industries are distributed, with different regions of the space exhibiting markedly different behaviors. The theoretical scope of White's model becomes clear when one realizes that the standard competitive market model reduces to a single line in the full space he has defined.

This broad theoretical scope is what makes the model exciting. In this book, White has developed a new alternative to stale economic production models that is mathematically rigorous yet surprisingly subtle. He greatly extends earlier treatments of the model by recasting the process to look "upstream" (towards producers) and relating multiple markets to each other through substitutability. Throughout, he nicely demonstrates the families of markets with empirical examples. If economic sociologists, and hopefully some economists, empirically verify and extend this model, we may have the foundation for a truly dramatic sociological contribution.

The book is not easy to read. The formal models are complex, the text is terse, and the scope of the model makes finding an accessible starting point difficult. Readers completely unfamiliar with the previous work may find starting with the last section of chapter 3 useful for situating the components of the model, while those more familiar with standard market models may want to start with chapter 11. The book is organized in four parts, revolving around the various families of markets. Part 1 describes the basic model, using two somewhat degenerate subregions of the plane to help frame the model. Part 2 extends relations between markets, developing the substitutability argument and showing that markets have truly emergent characters. Here White nicely relates his work to the emerging "economics of convention" being developed in France and goes on to discuss how one estimates the parameters of the model given the types of data one typically observes. Part 3...