by Alvin E. Roth
This book is a well-written and fascinating look into market design, recommended to me by John Howe. Markets are well designed when they are:
- thick (lots of options for buyers and sellers )
- not congested (quick),
- safe (a participant can disclose their true choices)
- and easy to use.
Well-designed markets should naturally nudge participants into honest behaviors (no side deals or gray markets).
When we speak about a free market, we shouldn’t be thinking of a free-for-all, but rather a market with well-designed rules that make it work well. A market that can operate freely is like a wheel that can turn freely: it needs an axle and well-oiled bearings. How to provide that axle and keep those bearings well oiled is what market design is about.
The author is an economist by trade who won a noble prize for his market design and game theory work. He tells the story of creating markets as diverse as organ (kidney) matches among living human donors (as opposed to cadavers) and recipients, matching football teams to bowl games, and doctors to residency programs.
I would HIGHLY recommend this book to any entrepreneurs involved in the sharing economy. How you match your customers is essential, and this book will help you understand some of the ways that customers can signal that they are likely customers, and companies can signal they are the best providers of services and products.
Marketplaces as varied as eBay, FreeMarkets, and the New York City public school system reveal a challenge that must be faced by virtually all markets: how to manage the flow of information. No matter how well a market is otherwise designed, it will have trouble giving people what they want if it doesn’t make it safe for them to try to get what they want.
While a little dated (written in 2016), all the examples are clearly explained, including several excellent examples about market designs that didn’t work. The author also does an excellent job of explaining how some of the more complex markets work (for example, the market for radio spectrum and how those auctions are conducted).
Amazon Link: https://amzn.to/3zACQH6
In the meantime, this is an excellent talk by Alvin E. Roth at Google.
J. Scott Christianson is a technologist and an Associate Teaching Professor of management at the Trulaske College of Business, where his interests are focused on the impact of technology on society. You can connect with him on his website, LinkedIn, Twitter, or by following his newsletter, The Free-Range Technologist.