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4.3 out of 5 stars
Reinventing the Bazaar: A Natural History of Markets
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12 of 12 people found the following review helpful
Format: HardcoverVerified Purchase
Wherever buyers and sellers get together, there is a market. In the absence of currency, trades have been consummated by assigning relative value to items (e.g. livestock, weapons, clothing) or services (e.g. plowing, medical care, harvesting). Throughout human history, there have been markets in one form or another at which people exchanged or purchased goods of various kinds, usually in a centrally located area such as a crossroads, harborside, village center, or town square. Buyers and sellers (or traders) gravitated to markets where and when there would be the most people. At least to some extent, all that remains true today even with the emergence of cybermarkets. Effective marketing in the 21st century creates or increases demand first by attracting interest. Hence the importance of visibility. It must also provide a convincing argument as to why a given product or service is preferable to other options, including not purchasing anything. Supply and demand often come into play. Pricing is frequently a decisive issue. For centuries, be it in an ancient bazaar or modern market, buying/selling/trading is among the most dynamic of human activities.
In this lively as well as informative book, McMillan offers "a natural history of markets" which helps us to gain a better understanding of how markets work as well as of what they can and can't do. "Markets do what they are supposed to do, however, only if they are we structured. Any successful economy has an array of devices and procedures to enable markets to work smoothly. A workable platform has five elements: information flows smoothly; property rights are protected; people can be trusted to live up to their promises; side effects are curtailed; and competition is fostered." I agree with McMillan that, as a result of innovations made by participants, "spontaneous evolution is the main driver of [private sector] markets" if and when provided with assistance from the public sector (i.e. government).
Because throughout history the strength of markets has been their adaptability and their "restless reinvention," McMillan argues, shaping new markets is both a task for governments and an opportunity for entrepreneurs. Appropriate involvement by the former ensures, for example, the protection of intellectual property; appropriate involvement by the latter ensures that the process of adaptability and reinvention is sustained. There are so many excellent books now in print which discuss the most effective marketing strategies and tactics.
Secondarily, McMillan examines several of them but his primary purpose, as I understand it, is to explain how and why the market economy ("...the worst form of economy, except for all the others which have been tried from time to time") "solves some all but intractable problems...[because] it admits variety and permits criticism" This book will be of greatest interest and value to decision-makers with responsibility for marketing within organizations which either have no "workable platform" or one which may soon collapse from the weight of external competition or internal inadequacy.
I also highly recommend this book to those who have a keen interest in cultural anthropology. As suggested earlier, the bazaar or market has always been and always will be among the most dynamic of human activities. Why? Because it must constantly be reinvented to accommodate ever-changing human needs and interests. McMillan's comprehensive analysis of that volatile process is a unique and brilliant achievement.
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10 of 10 people found the following review helpful
on August 20, 2004
Format: Paperback
Mc Millan's book makes it easy to understand how markets work, as well as their bennefits. Although it is not a book advocating free markets, it puts some sense into the idea through fun examples, stories and quotes. Anyone toying with the idea that free market economies are bad should read this book. As an imparial comment it might show a thing or two about why it is that free market policies don't seem to work for some countries(because they are not all that free)while in others they seem miracuolous.

The secrets of economic growth and sensible pro market policy can be extracted, although I wouldn't base a government's development plan on it.

The book is fun to read, easy to understand and highly illustrative. A must read for anyone (for or aginst free markets)
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19 of 22 people found the following review helpful
on March 29, 2003
Format: Hardcover
This timely book describes the market systems of today's world. He is an advocate of what he calls the "market design approach" of economic systems. He has five things that a market needs to be effective: social trust, property rights protections, negative externality prevention, free flow of information, and competition. He makes a strong case for a `middle way' in economic development when it comes to government involvement. He argues that the controlled and command economies of the far left, and the laissez-faire libertarian approach of the far right are both equally garbage. He tells some interesting stories of the worldwide pharmaceutical industry and critiques it's free market effects on society and world health. His discussion of information and technology are somewhat simplistic in my opinion, and his conclusions that for economic development these two forces need to be free to innovate and profit seemed the same pedantic old story that is peddled by Gates and co. He makes a strong case for honesty in business and describes some very interesting approaches for regulating and policing business behavior. His discussion of patents and intellectual property rights seemed balanced in its look at how they can help and hinder business and society. He also describes (convincingly in my opinion) how individual and company behavior creates all kinds of negative externalities that cannot be left to the market to take care of. The last couple of chapters described the very different methods of economic transitions used by New Zealand, Russia, and China, and he has some interesting conclusions to offer. He also addresses a chapter to the anti-globalization movements, and to the Marxists and Libertarians, where he takes what they argue, and looks at statistical evidence, and pretty much negates their arguments without really addressing the sociological and political grievances and seems to take a more simplistic model that economic growth is the best way to improve the lot of everyone everywhere, which I found annoying. But overall, he makes a strong argument for markets and their abilities to supply the most efficient system of providing goods and services to a society, but also recognizes significant weaknesses inherent in it that must be balanced by government activity.
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12 of 14 people found the following review helpful
on September 2, 2002
Format: Hardcover
Through a diverse set of examples, John McMillan illustrates how markets work -- and how in other cases they fail to work. McMillan's book, Reinventing the Bazaar, builds a case for market design through anecdotal evidence rather than economic theory. The first half of the book describes -- using clear and apt examples -- the ... basic features of market design; the balance of the book illustrates how the elements of market design are implemented.
McMillan's examples are reminiscent of business school case studies -- focused, self-contained, realistic, and practical. The illustrations that McMillan offers are the strength of the book. (McMillan gives especially compelling examples from fields where he has a personal interest -- like football/soccer -- and where he has firsthand experience -- the design of auction markets.) But the illustrations also are a weakness.
After reading Reinventing the Bazaar, you are left with a craving to know more about the theoretical underpinning of market design.
In classical free market theory, a market functions best in a "hands off" environment, with only the the Smithian "invisible hand" at work. In contrast, McMillan's market design is very much "hands on." Competition is a key component of McMillan's market design theory; and the elements of proper market design promote competition. But the McMillan designed market is carefully regulated and circumscribed by detailed rules (insulated from the excesses of the "free for all" of the Smithian invisible hand market).
Inevitably market design theory clashes with classical free market theory (and accepted free market ideology). As McMillan illustrates well, normative rules are necessary to a healthy well-functioning market system. It is time to acknowledge that Adam Smith's invisible hand theory is just plain wrong (as Walter Schultz proves at the theoretical level in The Moral Conditions of Economic Efficiency). Although theory is not as engaging as anecdote, it is important to connect the obscure jargon of economic theory with the real life practice of market design.
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6 of 6 people found the following review helpful
on September 27, 2011
Format: PaperbackVerified Purchase
Reinventing the Bazaar was written by the late John McMillan, a professor of economics at Stanford and an expert on government procurement. This is a book about the economics of markets (with a focus on market design), not an economic history, as I believed when I purchased the book.

Prof. McMillan devotes the first half of the book to what he identifies as the five basic components of market design: information flow, enforcement of promises, competition, property rights, and externalities. He devotes the second half of the book to implementation of those five basic components.

Overall, Prof. McMillan does a good job explaining economic concepts in plain English. Reinventing the Bazaar gets into a lot of the "guts" of markets that are typically not covered in basic economics classes. In particular, Prof. McMillan recognizes the importance of law and legal institutions to markets, something economists sometimes gloss over.

Unfortunately, Prof. McMillan has a tendency to make some rather questionable statements. For example, there is a rather blatant error (or omission) in his discussion of the preference of book agents' for sealed-bid auctions over open auctions (which net their clients higher advances). Prof. McMillan identifies the agents' position as "mistaken." But this preference is not due to mistake, it is due to agency costs. The agents are acting in their own self-interest in a scenario in which their interests conflict with those of their clients. Agents reap only a fraction of the benefit of the final bid, but perform the bulk of the extra legwork necessary to run a successful open auction (which also takes longer). This creates the divergence in interests.

Other statements look more like sloppiness than error. If it were true that the conventional wisdom is that "markets cannot exist without private ownership underpinned by the legal system," then the term "black market" would not exist and be in widespread use (Prof. McMillan claims this despite discussing the shadow economy a few chapters later). He states that "street vending has even gone global" as if it were invented in New York City a few decades ago and has not existed for thousands of years.

Inexplicably, Prof. McMillan fails to mention a grave error in U.S. spectrum auctions (which he apparently helped design) that allowed telecom companies to collude and buy spectrum for a fraction of its true value. By not forcing companies to bid only in large increments, the U.S. gave them an avenue to signal each other during the auction. Tim Harford covers this design flaw in chapter 7 of The Undercover Economist.

In his otherwise excellent discussion of tradeable emissions allowances, Prof. McMillan correctly notes that they only work if the total amount of pollution matters more than where it originates, but he fails to note in his implication that local pollution should be handled by government command-and-control action that local pollution is more susceptible to Coasian bargaining than national pollution due to lower transaction costs.

Prof. McMillan argues that government action is needed for effective markets (ordo-liberalism), and that is an important argument to make, but he fails to address its limitations. He recognizes that property rights are expensive to establish, for example, but any discussion of regulation without a discussion of regulatory capture is incomplete. Public choice theory is woefully absent, a fatal flaw for a book so concerned with designing efficient markets.

Reinventing the Bazaar is at its strongest when covering deregulation and privatization. Capitalism is clearly superior to command-and-control direction of the economy, but we have come to learn that even where there is an obviously better alternative, the transition itself can be problematic. Post-Soviet Union Russia is contrasted with China. Russia tried to used command-and-control methods to privatize its economy; China used more decentralized methods. Not surprisingly, China's efforts were more successful. I would remind advocates of deregulation and privatization that they are also government action and subject to the same limitations.

The final chapter puts things into a more political perspective. According to Prof. McMillan, neither free market and anti-market ideologues have an empirical leg to stand on. Where we come down in the middle must be determined by core values but, more importantly, also by the facts. I would add that this is good encouragement to look a little closer at the economic merits of public policy proposals (beyond what sponsoring politicians claim they are).

There are, I think, some fairly serious issues with Reinventing the Bazaar, which is why I gave it only 3 stars, but it is not without merit. It is probably as good a basic survey of economics for laymen as I have found (sadly, a largely disappointing sub-genre). I think it could still be an excellent choice if coupled with a survey of public choice, such as Gordon Tullock's Government Failure, to fill in its deficiencies.
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5 of 5 people found the following review helpful
on August 13, 2002
Format: Hardcover
Professor John McMillan (Stanford GSB) has done a tremendous job in sharing his knowledge of markets and the economic theory underlying them in this book. Part economics, part psychology, part history, this book has something for the business student, professional trader, or those looking for a satisfying explanation for why certain things are better left to market forces.
McMillan does a commendable job in discussing such things as healthcare and why it's so expensive in the US, why New Zealand underwent painful economic reforms in the 1980s and why the reforms took so long, why California's electricity markets lead to ridiculously high consumer prices in 2001, why patents act as a tax on information, why centrally-planned economies just don't, and won't ever, work, and why corruption seemed to work in Indonesia under Suharto and why it is strangling Japan.
The chapters are:
1. The Only Natural Economy
2. Triumphs of Intelligence
3. He Who Can't Pay Dies
4. Information Wants To Be Free
5. Honesty Is The Best Policy
6. To the Best Bidder
7. Come Bid!
8. When You Work for Yourself
9. The Embarrassment of a Patent
10. No Man Is An Island
11. A Conspiracy against the Public
12. Grassroots Efforts
13. Managers of Other People's Money
14. A New Era of Competition
15. Coming Up For Air
16. Antipoverty Warriors
17. Market Imperatives
I wholeheartedly recommend this book, both to Americans and foreigners, as there is enough of interest to satisfy both audiences.
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7 of 8 people found the following review helpful
on May 17, 2007
Format: Paperback
I had never expected to give a 5-star review to a book about markets. But this book is a very even-handed description, favoring a case-by-case approach to "market design". Government is neither all bad nor all good, and markets are neither all good nor all bad, in this view. Nor does McMillan wrap markets in the mantles of politics and/or religion, a la Milton Friedman, George Gilder and others. The writing style isn't as felicitous as Tim Harford's "The Undercover Economist", which covers a lot of the same economics theory as this book; nor is this book quite as quick a read. But it has more real-life examples and more intellectual depth overall, while still being very much a popular, non-technical book. Like Harford's book, this one gives orthodox neoclassical economics theory (Arrow-Debreu, equilibrium, supply and demand, and other "Econ 101" stuff) more credence than it merits, but McMillan's pragmatism and professional humility somewhat compensate for this defect. Sadly, John McMillan passed away in March 2007 from cancer while still in his 50s. This book assures us that such a reasonable voice won't vanish completely -- which is lucky for us, since such voices have always been in short supply.
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4 of 4 people found the following review helpful
on November 26, 2002
Format: HardcoverVerified Purchase
This is book covers the history of markets with diverse and rich examples of market variations. The critical analysis of which markets work (or don't work) and why is the most valuable part of the book. If your business has critical marketplace dynamcis effecting it - this is an important read so that you understand the markeplace from a variety of perspectives - not just your own.
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3 of 3 people found the following review helpful
on January 28, 2007
Format: Paperback
Well organized, very well researched, surprisingly readable prose for an academic, and a well balanced mix of case studies from a wide variety of actual markets and more abstract reflections based in good part on these studies. I'm not giving it the full accolade of 5 stars because of some repetitiousness and a "target audience" problem: most readers will either find themselves reading relatively long passages that teach them nothing new (if they're already well-grounded in microeconomics) or else faced with some concepts that are pretty hard and not adequately taught in this book (if the readers lack any previous study of microeconomics) -- that's a difficult problem to solve, and I don't claim to know a solution, but Professor McMillan hasn't found one either. Nevertheless, I'd recommend the book to all levels of readers, as just about everybody will get many useful notions and ways of thinking from it, and it is, all in all, quite pleasant to read from cover to cover.
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3 of 3 people found the following review helpful
on July 11, 2002
Format: HardcoverVerified Purchase
A very interesting overview of how markets function for people with little or no background in economics. The author is able to convey his keen interest in the subject, and has a good sense for what to explain to what to leave out.
The fascinating heart of the book is the explanation of how different markets can be designed to price different types of goods, from used carpets to camels to pollution to slices of the radio spectrum. After reading it, I found myself thinking of marketplace solutions to all sorts of problems I dealt with in daily life, such as how to divide up the chores for the kids. To me, that is the mark of a successful book!
The only complaints I had about this book was that I thought it was a little too short. I would have enjoyed more examples. Also, in a book like this I would have expected an appendix that would give me guidance on further reading.
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