By Tom Hayes, Publisher, Edgelings
For a century economists have tinkered with the theory of the “perfect market,” a state of equilibrium where both sellers and buyers share access to all information, act with cool rationality, and enjoy barrier-free entry and exit. According to the hypothesis, the perfect market would be a highly-efficient, highly-stable, highly predictable nonzero-sum world without scarcity, crime, passion or want. In other words, a pipe dream.
Like most theories, notions of a perfect anything are doomed to failure in practice as soon as you add in the human element. Trickier still, imperfection has a long history of being profitable. From the earliest trading posts to the NASDAQ to the tony storefronts of Shibuya, the dance of supply and demand, the gravitational pull of scarcity, the down card dealings of insiders and other inefficiencies are long-accepted characteristics of organized trade. This imperfect market operates on the tension created by imperfect information exploited by a carnival of arbiters, middlemen, and every stripe of snake oil hucksters. At least, that was true when one side of the counter had the upper hand. Today, the game has changed with the potential for a better deal for all.
The concept of a true perfect market remains theoretical, perhaps unattainable, but that doesn’t mean we cannot adapt and evolve to a more perfect model.
The idea behind the idea, is that perfect markets operate to both sellers’ and buyers’ maximized ends. Like a bakery that sells out its confections every night, or an open source software project, the fruits of which belong to all who contributed. In other words, a win-win world. Today’s social technologies are taking us closer than ever to such a theoretically perfect marketplace. The emerging social media landscape is creating a new type of market, one that operates on a more perfect syncopation than we could have ever before known. The emerging Network-driven markets are self-selected, self-organized, self-serving. Buyers and sellers are on equal footing. In the new schema, there is heightened awareness for symbiosis and mutual benefit; often consumers are also producers, and prosumers respect each other in ways transactional relationships can’t imagine. Transparency and shared information are keystones, as are systems of trust and reciprocity.
Good for both buyers and sellers, the new milieu makes less profitable the old world exploitation of imperfection and unfair advantage. As is often true, markets are ahead of organizational response. The new dynamic creates change that ripples through our industrial age, mass media traditions. Affected are tired ideas about distribution, marketing, customer relations and even product design. Organizations that cling to the old will come under increasing pressure to change-or they won’t; they will simply become artifacts of an era past.
For a good example of perfect market transparency in action, consider the national real estate brokerage group Redfin. To the dismay of old school brokers, Redfin breaks the mold and exposes the often unsavory underbelly of the real estate brokerage process, demystifying and debunking the once-hidden details of how agents operate and make money. Armed with more perfect information, consumers can buy just the services they want, know the implications of choices they make and can get a better financial deal when they buy or sell a home. At the same time, brokers win by having more and happier clients with right-sized expectations. And, thanks to its Consumer Bill of Rights and the growing ranks of fellow brokers who have signed the Bill, Redfin is helping to change the real estate world for the better.
Another characteristic of a perfect market is freedom to enter and exit at will and a great example of this total latitude comes from Amazon and its Mechanical Turk job matching site. A twist on the growing “elance” movement, according to its FAQs, the service gives “businesses access to a diverse, on-demand, scalable workforce and gives workers a selection of thousands of tasks to complete whenever it’s convenient.” Basically, Mechanical Turk recognizes that there are still many things humans can do better than computer programs or bots and the platform allows people to earn nominal sums for small tasks that they perform whenever they want to.
Giving the customer a role in product development and support is another perfect strategy. In the era of the Wiki and crowd-sourcing, it is easier than ever for companies to tap the wisdom of their customer communities. Motorola, for example, allows its customers to substantially rewrite the User’s Manual for the new Q phone. Since every customer is a test lab unto themselves, this gives the Q community the benefit of more and better information, and it gives Motorola a massively-dispersed, cost-free development lab. Everybody wins from this “perfect” partnership.
Yes, the perfect economy remains a theoretical notion. But like pure democracy, that doesn’t mean we shouldn’t aspire to it, or strive to approximate its virtues.
Undeniably, Network-driven markets are becoming more perfect. No matter how out of balance things may become short term, the long-term trend is in the right direction: more transparency, more choices, better quality at lower prices, increased productivity and efficiency and greater customer satisfaction. Businesses must become more perfect too. The smart companies, the more opportunistic companies-the profitable companies-of the future will adopt more perfect practices. In fact, perfect is the only viable business strategy for the long term.