How to Evaluate an E-Market
Every market for any resource was designed by someone. Their decisions shape market access, structures, functions and usefulness. To rank an exchange, we focus on the impact for its sellers (workers in the case of a labor market). Cool new ways to buy stuff don't pay household or business bills. Five broad criteria are the most revealing.
It is easy to overlook how bad current online market platforms are because they are so often appraised from a buyer perspective. So, Uber is typically characterized as a transportation app, competing with services for booking train tickets or renting cars. But it is a labor market, on a spectrum for its sellers with apps for thousands of other tasks and offline paths to ad-hoc work.
Five aspects to rank
For any market, online or off, these factors allow comparison of its economic value:
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These facets of any forum matching buyers to sellers have traditionally been abstract. In physical markets it is not feasible to have every possible buyer of - to take one example - cows present at the same cattle market. But digital exchanges can achieve 100% depth by interlinking multiple platforms.
Our new reality
To see the five factor markets in reality, look at global financial institutions. Since the 1990's Wall Street has built itself trading infrastructure that simultaneously offers assets across multiple exchanges. Within these structures, proprietary software can make selling of bonds, stocks, derivatives and other instruments seamless. Today's proactive construction of opportunities, management of transaction or counterparty risks and flows of data would be inconceivable to a 980's stockbroker.
When markets are joined-up, each trade can gravitate to the lowest cost exchange, so transaction costs are a fraction of 1% of asset value. This drives up volumes, which further cuts costs.
Bankers asked governments to support their hyper-activity with new or updated governance institutions to build faith in the markets. America's SEC is probably best known. Other enabling official entities include the National Market System, Fedwire, government-owned clearing houses, the CFTC, the Mifiid standards and NRSRO’s; all underpinning a new breed super-efficient of markets.
De-regulation, increasing mobility of assets and short-termism reshaped Wall Street in the 21st Century. They are often blamed for financialization of economies. But five-factor markets have been an enabling architecture throughout, constantly attracting resources out of mainstream economies. When overheads, de-risking, liquidity, opportunities and solidifying institutions are this good, why put your money into friction-laden mainstream businesses?
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