Opinion | The Economics Of Agreement

Aditya Vikram Kashyap

Why the organisations that set the terms of interaction, rather than those that merely build the best products, will define the next era of economic power

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For most of the last century, we knew where monopoly lived. It lived in things you could touch. Standard Oil controlled refining and pipelines. The railroads controlled track. AT&T controlled the copper running into every home. Steel, aluminum, oil, spectrum: economic power meant owning a scarce physical resource or the capacity to manufacture at a scale no rival could match. The monopolist held the asset, and everyone else paid to reach it.

That definition still shapes how regulators investigate market power and how competitors attack it. It is increasingly out of date, and it was always incomplete. The railroads owned track, but their more consequential achievement was standard time: in 1883 they divided the continent into time zones, the country followed, and Congress did not write the arrangement into law for another thirty-five years. Monopoly has never had a fixed address. It settles wherever coordination is hardest, and for a century that coincided with where the assets were. Power accumulated in turn around resources, manufacturing scale, distribution, which is why the great retail fortunes were built on logistics rather than merchandise, and then information. Each of those scarcities has since eased. Coordination has not.

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That is not an accident of technology. Production, computation, and capital share a property that coordination lacks: they scale by replication. A second factory, another data center, an additional unit of capital can be added without renegotiating the first. Agreement cannot be copied that way. A standard is trivial to publish and worthless until others adopt it: the rulebook is free, the agreement is not. Nor does agreement stay put once accumulated. It depreciates under disputes, fraud, defection, and technical change, and must be continuously reproduced by someone with the authority to do it. That is why durable coordination settles in institutions rather than products. A product can be superseded in a season; an institution’s entire function is to persist.

Visa is the cleanest illustration. It is not a financial institution, and by its own account it neither issues cards nor extends credit. What it supplies is confidence that a payment between two parties with no relationship, and no means of assessing one another, will settle. It writes the operating rules under which its clients transact, and it indemnifies its financial institution........

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