Leveling the Data Playing Field – Forming New Markets
The economic concept of asymmetric information is fascinating … so much so that research on the topic earned the 2001 Nobel Prize in economic sciences. The idea is that there is an imbalance of power in a transaction when one party has access to more information than the other. It results in buyers not being able to bid as much or sellers not knowing what to ask for an asset. Markets freeze up or at least huge price premia are placed on the uncertainty. Bringing more information to all sides allows for more efficient markets.
Of course, as technology has developed and more people have access to more information at less (or no) cost, asymmetry of information has started to break down. Today’s digital platforms enable information to be communicated very quickly in a format that is relevant to whatever decision a party needs to make.
In the case of Uber, for instance, drivers and passengers alike have access to the same information about the location and availability of – as well as demand for – drivers. That information can affect the outcome of the economic relationship between driver and passenger, both of whom choose to work together (or not) based on the same set of data. Airbnb does something similar with housing.
When asymmetry of information breaks down, markets operate more efficiently. It does not even mean that prices have to fall. In fact, in the case of Uber, it is now possible for drivers to earn premium fares during peak periods, something that was not possible in the past.
I think it will be interesting to see how digital platforms continue to remove the asymmetry of information in our daily decisions. Already Yelp helps us pick better restaurants. Similar models based on digital platforms are on the way in how we select housing, insurance, doctors, and even who to date (as in on-line dating services). In this age of big data analytics, data-driven decision making and information accessibility, symmetry of information will become more demanded and help us match supply and demand.
Airbnb, Algorithm, Analytics, Apple, Artificial Intelligence, Asymmetric Information, Big Data, Big Data Analytics, Big Data to Big Profits, Data Analytics, Data Monetization, Data Products, Data Science, Digital Platforms, Economic Sciences, Uber