The Inner Lives of Markets - Fisman and Sullivan
New types of markets (for example Ebay, Uber or Airbnb) are an ever-growing part of our lives whether we are aware of it or not. The authors argue that the answer lies somewhere between the free-market idealism and state-heavy regulation. The authors also argue that people can make sense of the current market set-up through understanding the evolution of economic thought over the last 100 years. These ideas have slowly been building on each other leading us to better set-up and performing markets.
Key insight- They're not for everything!
I enjoy the book's idea that markets are increasingly sophisticated and can be utilized to solve an increasingly large number of problems.. However, they do NOT argue that they are the end-all be all for every challenge society faces. There are plenty of situations where markets and platform companies can help facilitate inefficient groups to ensure everyone gets their best possible outcome. However, on certain issues, societal concerns about fairness mean that the most "efficient" market is not the one society values most. For example, it is likely that deaths due to people waiting on the kidney transplant list could be reduced with a system where people can offer money in return for a kidney. More people would have the incentive to donate and it could be argued that even poorer people would be better off because they value the resulting payoff ($!) more than a second (unnecessary) kidney. Free market advocates may say that is reason enough to go forward with the plan. However, do we want a system where poor people are selling their organs to the highest bidder, especially if that potentially crowds out people who can't pay for them? I think the power of the more advanced thought on markets is that we now have a better understanding of how markets can best perform in a vacuum.. With that information, we can make better decisions on how we want to allocate weights to different challenges/variables.
Uber, Airbnb.. New companies that eliminate friction permanently or temporary?
People have hailed the rise of companies like Uber and Airbnb as revolutionary and that have permanently ended some of the frictions that have plagued consumers for years (such as difficulty in getting a taxi when you want one). The authors make a great point however that these companies will have incentive to create friction in order to maintain their competitive advantage. For example, Uber will raise obstacles so competitors like Lyft can't thrive which in the end may hurt consumers.
New types of markets (for example Ebay, Uber or Airbnb) are an ever-growing part of our lives whether we are aware of it or not. The authors argue that the answer lies somewhere between the free-market idealism and state-heavy regulation. The authors also argue that people can make sense of the current market set-up through understanding the evolution of economic thought over the last 100 years. These ideas have slowly been building on each other leading us to better set-up and performing markets.
Key insight- They're not for everything!
I enjoy the book's idea that markets are increasingly sophisticated and can be utilized to solve an increasingly large number of problems.. However, they do NOT argue that they are the end-all be all for every challenge society faces. There are plenty of situations where markets and platform companies can help facilitate inefficient groups to ensure everyone gets their best possible outcome. However, on certain issues, societal concerns about fairness mean that the most "efficient" market is not the one society values most. For example, it is likely that deaths due to people waiting on the kidney transplant list could be reduced with a system where people can offer money in return for a kidney. More people would have the incentive to donate and it could be argued that even poorer people would be better off because they value the resulting payoff ($!) more than a second (unnecessary) kidney. Free market advocates may say that is reason enough to go forward with the plan. However, do we want a system where poor people are selling their organs to the highest bidder, especially if that potentially crowds out people who can't pay for them? I think the power of the more advanced thought on markets is that we now have a better understanding of how markets can best perform in a vacuum.. With that information, we can make better decisions on how we want to allocate weights to different challenges/variables.
Uber, Airbnb.. New companies that eliminate friction permanently or temporary?
People have hailed the rise of companies like Uber and Airbnb as revolutionary and that have permanently ended some of the frictions that have plagued consumers for years (such as difficulty in getting a taxi when you want one). The authors make a great point however that these companies will have incentive to create friction in order to maintain their competitive advantage. For example, Uber will raise obstacles so competitors like Lyft can't thrive which in the end may hurt consumers.
