From consumers to prosumers: Rise of the frugal economy

The transition to a frugal economy is happening. Traditional companies must get on board or risk becoming obsolete, writes Navi Radjou.

In a 1937 essay, the economist Ronald Coase argued that the reason Western economies are organised like a pyramid, with a few large producers at the top and millions of passive consumers below, is the existence of transaction costs — the intangible costs associated with search, bargaining, decision-making, and enforcement. But with the internet, mobile technologies, and social media all but eliminating such costs in many sectors, this economic structure is bound to change.

Indeed, across Europe and the US, vertically integrated value chains controlled by large companies are already being challenged by new consumer- orchestrated value ecosystems, which allow consumers to design, build, market, distribute, and trade goods and services among themselves, eliminating the need for intermediaries. This bottom-up approach to value creation is enabled by the horizontal (or peer- to-peer) networks and DIY platforms that form the foundation of the ‘frugal’ economy.