I'll try another example. You reference that maybe the market might just return to it's equilibrium.
To me that sounds a bit mystical to my ear.
What I mean by that is the equilibrium as concept does not exist (to me at least) other than as the relatively steady state a complex system settles into after it's inputs stop changing. And since I'm talking specifically about changing certain inputs and holding others steady, and then you make a claim that the market is going to end up at some "equilibrium" that is not 100% determined by it's inputs, we'll that's mysticism.
It's fine to say we have no idea what these inputs are going to produce (and to some extent I think that's the road you are going down), but It's another kettle of fish entirely to say the system will gradually ignore these inputs because it has some external equilibrium it want to return to, which it sounded a lot like you were claiming.
That isn't what an equilibrium means. An equilibrium means that the system has a state to which it will return even when the inputs change. For instance, the equilibrium position of a ball is at the bottom of a hill. If you roll it part of the way up the hill, it will roll back down. There's nothing you can do, save removing the ball from the valley or making structural changes to the valley (like barriers), to keep the ball from returning to the bottom.
A slightly more realistic but still familiar example: ACC basketball. The equilibrium from 1980-2020 has been that Duke and UNC are the top programs. One of the two, and usually both, are almost always in the top 2 or 3 teams in the league. The equilibrium is that Wake is usually bad. Why? Because the system is structured to that end. When UNC hired Matt Doherty and then fired him because he sucked, we had Roy Williams ready to take over. Wake doesn't have a Roy Williams. And if Wake did find a Roy Williams, that guy would quickly leave for a bigger program and Wake would have to hire someone else, who won't leave and has to be fired. Thus the equilibrium is that Wake will have a bad coach. And thus the equilibrium is also that Wake will lack good players (which is also because good players don't want to go to bad programs). When UNC doesn't have enough talent, we go get more. Wake can't do that. It can get a Chris Paul or Tim Duncan here or there, but can't sustain that success.
In football, the equilibrium is different, because the system is structured differently. In basketball, the team's success is primarily determined by the best three or four players. Having Duke next door to UNC is a recruiting boon for both teams, because they can offer top recruits the ability to compete against other top players. But in football, one or two superstar players is not enough to be good, or at least not enough to be great. The team's success is more determined by the quality of the 10th-20th best players. In this situation, it's not good that we are next to other DI programs. It means that we will only get half or less of the top 20 recruits in our state. Some will go to NCSU. Some will go to Clemson or VAT and of course FSU and GA sometimes come calling.
Compare to Nebraska in the 80s and 90s. They had no competition for in-state recruiting. In fact, they had little competition in their entire region. Nebraska and Oklahoma basically had their pick of players from Nebraska, Oklahoma, Kansas, Missouri, Colorado, Iowa, etc. The equilibrium was that they would continue to attract talent because the system structurally favored them. They were always going to be better than NC. To the extent that they have fallen off, it's because of another structural change -- this time, it's the rule and scheme changes that have made the recruiting bases in the plains states less fertile. Size is less important; speed more so.
And so in economic markets, equilibrium is the state to which a market will return when dislocated, because of structural factors. Ball bearings are a commodity product. They are sold by many, many different producers, and for the most part, the products are undifferentiated. There's no big money to be made in ball bearings. I mean, you can make a nice living, but there are no billion dollar ball bearings fortunes. Now, suppose that one ball bearing manufacturer discovers some new process that allows them to make bearings at considerably lower price than competitors. Well, their business will start booming. They can lower their prices, sell more volume and increase their profit margins all at once.
So what happens in the ball bearings market in response to this change in inputs (the technical phrase is exogenous change)? Well, the other bearings manufacturers figure out how to do the same thing. Or maybe new manufacturers with similar processes enter. What will not happen is that original innovator retaining its market share. Structurally, the market cannot support a dominant firm with a premium supplier, because in the end all ball bearings are the same, and it's super-easy to start making and selling ball bearings if profits in the industry get too high.
Compare to the equilibrium in a tech market. DOJ is bringing an antitrust case against an alleged monopolist. AT&T, right? I mean, Microsoft. I mean Google. I mean Apple. The equilibrium in tech is the opposite of ball bearings because of network effects. Everyone had to write their apps for Windows because Windows was what everyone used. Might a Windows competitor show up? Like Linux? Sure. But few people are going to want to write apps for a system that nobody uses, and nobody is going to write an OS when there are no apps to use it for. So Linux has never had really any consumer market penetration at all. The same is true for Android and iOS. In addition, it's really, really hard to break into the market, because designing an affordable, working, bug-free smart phone is really, really expensive.
Thus, tech markets can almost always be counted on to have a handful of dominant firms at most, and often just one or two. That's the equilibrium for tech. The equilibrium for ball bearings is very low concentration in market share. Any change in inputs will be resisted by the system properties and the system will soon return to its normal state unless there is a very significant "disruption."
So what does that mean for housing? Well, the lumpy demand I described above creates an equilibrium, and that equilibrium is likely to be different than grapes. In construction, over-supply is common, and builders have to work hard to avoid getting caught with huge unsold inventory. That's because their market can dry up, because people only buy one house and they can time their purchases. In grapes, that's much less the case. Over-production is rare, because demand is steady and more predictable, and over-production quickly corrects itself. Usually producers plant the right amount; it's the weather that determines whether they have a good or bad year.
Now, I'm not a construction industry expert. I can't tell you in any great detail, and certainly not with high confidence, exactly what the equilibrium in the housing market looks like. But there is an equilibrium, and it won't be the same type of equilibrium as with grapes.
Does this help? For further study, you might read or think about the so-called "prisoner's dilemma." You've probably heard of it; I'm not sure how deeply you've thought about it. I tend to use the phrase sub-optimal equilibrium to describe the situation, because that better describes what it is. Two prisoners want to plead out to minor charges and get six months in jail, and if they could coordinate, that's exactly what they would do. Neither will flip. But if they can't coordinate, then they will both flip on each other, even though in that situation they would get six years. And that will tend to happen no matter what the inputs are, so long as the reward for flipping alone is better than the reward for both flipping or both not flipping. The choice to flip strictly dominates the choice not to flip.
In economics, this explains why it's hard for producers to collude. OPEC, for instance, is only partly successful at controlling the output of its own members, and so the price of oil is always less than the OPEC target (even without much non-OPEC supply). At the meeting, everyone gets a quota. But cheating on the quota strictly dominates obeying the quota. Nobody wants to be the sucker obeying the quota when everyone else is cheating, so everyone cheats in the expectation that everyone else will. The equilibrium is cheating.
Does this help explain?
en.wikipedia.org
