Abstract
Despite being described as markets, modern economies essentially operate as networks. Markets determine prices but are not responsible for distributing access; networks do. When the value is not apparent and there is high risk of losses such as in jobs, lending, and contracts, it is the relationships that decide who gets the opportunity and prices just confirm it. The equilibrium is determined by transaction costs, however now artificial intelligence is altering that equilibrium. Goldfarb and Tucker illustrate that digitisation simultaneously reduced five different costs among them search and verification. Cheap verification made possible the rating systems that enable strangers to trade with confidence which explains why for thirty years it seemed like markets were absorbing networks. Generative AI reverses that equilibrium, making search costs almost nothing while at the same time verification is made costly by the fact that it has become cheap to falsify credentials, identities, and portfolios.
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