Trillion Dollar Economists

PART ITHE POWER OF ECONOMIC IDEAS: DIRECT USE IN BUSINESS

As promised in Chapter 1, this first part of the book contains chapters outlining how economic ideas have directly made money for firms, by enhancing revenues, cutting costs, facilitating innovation, or some combination of all three. In some cases, the entrepreneurs or businesses that implemented these ideas were acutely aware of them and their origins, and so the line between idea and outcome is easy to grasp. In other cases, businesses used an economic idea without knowing it, and economists later validated it, theorized about it, or quantified its impact. In a few cases, economists and businesses pursued their ideas in parallel, each seemingly unaware of the ideas or efforts of the other, though I suspect this may change over time (maybe some from each camp will read this book and make this prediction come true). All routes to business success are broadly consistent with the overall thesis of this book and with the quote from Keynes about the power of defunct (and not-so-defunct) economists and their ideas.

Chapter 3 begins with a discussion of how economic ideas have influenced how firms set prices. To be sure, in highly competitive markets, firms are price-takers: They take what the market dictates. But in a surprising number of situations, markets take a while to settle down and, especially in new markets or circumstances, economists have offered useful advice about how those markets should be created and prices ...