Have you ever wondered what a market is?
A historical view to a market is a place where farmers get together to sell their produce to each other. The core idea is that an individual farmer can focus his efforts into a particular good and become an expert in producing the good and in a market he can then exchange the good for money and with money be able to buy other goods.
Even today we go to markets located in city centers to buy our meat, fish and groceries. From the consumer point of view a market will collect different goods together and will therefore also reduce our search cost. It is very often the case that the market itself has specialized and is no longer the producer or the farmer. himself doing the selling. It is also very common that the original produce has been refined into other products e.g. milk into butter and cheese and cakes etc. Many of today’s markets have first specialized in special stores e.g. become travel agencies and moved on to become online markets e.g. travel agencies have become online sites.
The core idea however remains. A market is a place of transaction in which competition brings down the prices and encourages participants to create as much value added as possible. A Market is a place where individuals and companies meet to transact and do trade.
Some times it is also necessary to ask the question what is not a market or what are the limits of a market? With huge supermarkets it seems that almost everything can be sold in a market. However even the super market is limited by space as we learnt from the theory of the Long Tail. Supermarkets sell new goods, but online auction sites are good sites for selling used household goods. Sites like Amazon started by selling books but have now moved to offer also other goods. It seems that a market is also continuously defining itself to the consumers which visit it.
Markets are all about trade, transacting, making deals and also about how prices are formed. In the next two videos I will talk about how prices emerge in markets of perfect information and of rational actors. The two last conditions are strong conditions. One can always argue that all you need to do is set a price and hope that the buyer will not ask around and will not be seeking for a profit or the best deal to himself and will pay the asked price.With a mobile phone it has become very easy to search for a particular good and its price. Stores are becoming show rooms to which consumers go to view and test the producta and buy it from the online store at a reduced price, This is the competition brick and mortar stores are facing.
Have a look at the following video´s and be prepared to answer differently, when somebody for example asks you for advice and asks you what price should he set for his sofa, when putting it online for sale?
Emerging new markets
The word market refers to the market square or the super market, but it also refers to a new industry or a new way of value creation, a new offering to the consumer. Players like AirBnB, Netflix, Uber, Spotify etc are key players in new markets.
We take markets for granted. We do not think about how new markets could emerge and how present markets could be refined. I have a career in the operator and mobile industries and have seen and witnessed the emergence of the mobile market, the emergence of the mobile internet market and now working at a university I am seeing and acting to change the way education is done. It will be interesting to see to what extent will education become a market? With this I mean to what extent can an individual consumer or student search the web or find a portal or platform on which online courses are available? And how will they be priced?
This online course is part of this work. This is all about redefining and creating new markets. I will talk about some of these features on the first video.
What is a Matching Market
An Algorithm for Market Clearing Prices
Algorithms
The above video was an example of matchmaking. A general word used in this connection is Algoeithms. We have algorithms embedded in many different services we use. The search engine is an algoeithm, Netflix, spotify etc rely on algorithms. Tinder and dating services rely on algorithms. To create an algorith one needs data. This data emerges from previous choices one has made.
I recommend you learn a few examples of what happens with algorithms. In the book the Creativity Code (Marcus du Sautoy) on page 57 there is a chapter titled ”Maths, the secret to a happy marrriage”. The chapter describes how following a particular algorithm four men and four women find the ideal partner for each other. Ideal in this context ”ideal” refers to a position that they could not move away to find another better partner. Ok, yes I grant you this is a bit theoretical.
The interesting aspect of the algorithm is that the result is different, if the men do the proposing or the women do the propising. This is one of the major concerns embedded in algorithms. They lead to biased results, which in turn can lead to social injustice. For the indivisual it is in practice impossible to see the injustice.
And yes, this very simple algorithm has been applied in far more complex situations and is used by both companies and institutional players all around us.
The insider view – How it Works
The use of a very simple algorithm can remain hidden from the user. For this reason it is necessary to look inside a company that is attempting to build its business around algorithms. The book Matchmakers (Evans, Scmalensee 2016) attempts just that. For a review of this book search for ”book review” or go to the review I found at https://medium.com/west-stringfellow/matchmakers-summary-and-review-4d50b3e44f07
Literature,
Du Sautoy, Marcus, The Creativity Code, How AI is Learning to Write, Paint and Think, 2019 4th Estate
Easley David, Kleinberg Jon, Networks, Crowds and Markets, Reasoning about a Highly Connected World, Cambridge, 2010
Evans, David S. Schmalensee Richard, Matchmakers, The New economics of Multisided Platforms, 2016
Funk Jeffrey, Solving the start up problem in western mobile internet markets, Telecommunications Policy 2/2007
Roth Alvin, Who gGets What and Why, The New Economics of Matchmaking and Market Design, 2015
The Digital Landscape 