On Information Asymmetry

Information asymmetry is defined in wikipedia this : In economics and contract theory, information asymmetry deals with the study of decisions in transactions where one party has more or better information than the other. This creates an imbalance of power in transactions which can sometimes cause the transactions to go awry.

Here is a lens with which to view business models (think FLIPKART/AMAZON/EBAY versus a OM BOOK SHOP/Borders/A used car dealership/ A tourist tout).  Think about your favourite brands and ask this : If customers got more savvy is it BETTER or WORSE for the model or the business in question.


I have spent most of my time in India and I sometimes think a LOT of models are nothing more than businesses exploiting Information asymmetry and if a bunch of savvy people pooled time and money and smarts, they could BLOW up HUGE firms and make a boatload of money in the process. I bet in no nightmare in 1993 did the CEOs of Barnes and Noble or Borders think one some baldy call Jeff would take them them out.

That’s why the internet (and the telephone before that) is such a BIG thing. Because it is not so much a tool to visit Facebook.com as it is TNT to blow up firms that count on a customer without all the facts. Here is the brilliant Onion.com that captures the zeitgeist.

If you business and the model it is based on is POSITIVELY impacted by the decrease in Information asymmetry then I think in the long run you will be OK. way better than the firm across the road that is counting on a ignorant customer.Because ‘I don’t know about my options’ is a dying customer breed and phrase.


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