Exchange Networks, Not Markets

Ramblings / Readings

Why is the real world made up of exchange networks rather than markets? In a word: trust.

Relationships in an exchange network quickly become stable (we go back again and again to the person who gives us the best deal), and with stability comes trust, i.e., the expectation of a continued valuable relationship. This is different than in a typical market, where a buyer may deal with a different seller every day as prices fluctuate. In exchange networks, buyers and sellers can more easily build up the trust that makes society resilient in times of great stress. In markets, one must usually rely on having access to an accurate reputation mechanism that rates all the participants, or to an outside referee to enforce the rules.

Social Physics: How Good Ideas Spread, by Alex Penland