Post-Coasian Economy and AI-driven Business Transformations

The business landscape is changing, and AI is the wrecking ball.

My friend runs a medium-size company. Instead of paying $60,000 yearly for enterprise analytics software, their CMO built a custom AI solution using a $20/month Cursor Pro plan.

This system, built without any engineering resources thanks to AI, automatically aggregates data from every marketing channel, tracks user behavior, calculates conversion rates, and generates dynamic dashboards. The entire company—from C-suite executives to product managers—now accesses real-time insights through interactive visualizations.

This is just one example of how AI is reshaping the economic landscape. SaaS is getting replaced with just-in-time software; every employee can create tooling for themselves; organization design is changing.

To understand why this shift is transformative, consider economist Ronald Coase’s insight: companies exist primarily to minimize transaction costs. But what happens when AI wipes out these costs altogether? The very logic that gave rise to firms is now disappearing.

The Bandwidth Problem

Organizations operate on bandwidth limitations. One brain can process information quickly, but propagating, quality checking and aligning on that information through many levels of management takes weeks.

Large organizations are severely constrained by this limitation. The financial costs are substantial; the operational delays are significant; the outcomes are suboptimal. This coordination overhead represents the fundamental bottleneck for to both business efficiency and broader societal advancement. Human prosperity and progress depends on our capacity to coordinate.

AI changes this equation. It processes information at 100s of tokens per second versus a human's 3-5. The result? More gets done, less gets lost in translation.

AI Transformations Happening Now

1. Corporate flattening

The deep nested management hierarchies are dying. Companies which required 70 employees to operate only require 10. Similarly one salesman handles more client and one programmer manages more services. Thus, both operation and costs efficiency are achieved which benefits both the business and the customers.

This isn't just cost reduction — it's a speed increase. Ideas travel faster from conception to implementation. This increases speed of iteration, innovation and eventually rate of progress in the economy.

Most individual contributors are now becoming managers, overseeing dozens of AI subordinates that can handle routine work and empower them to achieve more.

At the same time, businesses are realizing they can implement many more ideas. They're shifting focus from operational excellence to creativity, and are simultaneously running many more experiments and creative projects than ever before.

2. Hyper-rational customers

Imagine AI agents that read all 10,000 product reviews before making purchase recommendations. Not just skimming the top three.

When shopping for headphones on Amazon, you typically scan a few reviews and choose whatever seems decent. An AI assistant analyzes all 2,712 reviews, identifies patterns in defects, compares actual battery life reports, and finds hidden gems with better price-performance ratios. It spots fake reviews, checks if prices dropped recently, and even predicts if better models are coming soon. That's the difference between human and AI-powered shopping.

An AI shopping assistant on Amazon can build comparison spreadsheets, analyze hidden patterns, and make recommendations based on complete information. What takes you hours takes AI seconds.

3. Just-in-time software

The $250 billion SaaS industry faces a challenge.

Instead of paying $10,000s annually for software, companies can build custom solutions with AI. Not all SaaS is vulnerable, but many companies now ask: "Why subscribe when we can create?"

Custom AI solutions don't just save money - they transform how businesses operate. Unlike rigid SaaS products, AI can analyze your specific workflows, suggest process improvements, and build software that perfectly matches your needs. It's like having a management consultant who actually implements solutions instead of just making PowerPoint slides.

The AI understands your business context, integrates with existing tools, and continuously adapts as your needs change. You're not just buying software - you're getting an intelligent system that helps optimize your entire operation.

This shift benefits smaller businesses most. They gain enterprise-grade tools at fraction-of-cost prices.

The Challenges

Three fundamental challenges will determine how quickly this AI economic transformation unfolds:

1. Skill adaptation: As AI flattens hierarchies, value shifts from operational execution to strategic guidance. Workers must transition from being information processors to becoming AI orchestrators. Those who can direct AI systems will thrive; those who resist will struggle.

2. Institutional inertia: Established organizations have built processes, power structures, and profit centers around traditional hierarchies. The more entrenched these systems are, the stronger the resistance to AI-driven flattening is—even when the efficiency gains are obvious.

3. Trust equilibrium: For every AI system built for legitimate purposes, there's potential for malicious actors to create deceptive systems designed for scams, fraud, and exploitation. This creates an ongoing arms race between offensive AI used for deception and defensive AI mechanisms built to protect users. However, market dynamics typically favor defensive innovation since legitimate businesses and consumers collectively invest more resources in security than fraudsters can in deception.

These challenges aren't permanent obstacles but transition costs. Organizations that address them proactively will gain significant competitive advantages.

Embrace the Post-Coasian Economy

According to Ronald Coase's theory, firms exist because transaction costs in the open market are too high. Companies hire employees instead of contracting everything externally because coordination, search, and negotiation costs make markets inefficient. AI dramatically reduces these costs. When an AI agent can instantly find suppliers, negotiate terms, and manage relationships, the traditional rationale for large hierarchical organizations weakens. We're moving toward a more fluid economy where resources flow to their most productive use with minimal friction.

Decision quality rises. Transaction costs drop. Per human productivity increases.

We are witnessing a restructuring of the world's economy that is driven by programmable, self-regulating, autonomous and intelligent systems.

In other words, it's the beginning of the cybernetic economy.