Introduction

Summary

A decade ago, Arthur Okun, in his book Prices and Quantities, drew a distinction between auction and customer product markets. He focused on the latter, the ‘vast nonauction area’ (Okun, 1981, p. 134), which in his view prevailed in industrial economies outside of trading in financial assets and commodities. In customer markets, business firms set prices and wages to reflect long-term considerations to reduce costs, as well as short-term changes in markets. The long-term ‘invisible handshake’ (in Okun's words) between customers and suppliers, and between employers and employees, creates price rigidities which Okun identified as a cause of stagflation.

This book is also about the vast nonauction area in industrial economies. But its topic, buyer—supplier relations, is more narrowly microeconomic than Okun's, and its methodology very different in its reliance on a case-study-based socio-economic inquiry. This book identifies variations within customer markets in the way firms interact with each other, some by ‘invisible handshake’ and others by ‘visible handshaking’ (Aoki, 1984). Such variations have consequences not only for the way in which prices are determined, but also for other performance parameters, perhaps the most important of which today is quality.

Since Okun wrote, global competition in manufacturing has become more about coping with volatile market demands and rapid technological change.