Implications for Marketplaces
Design of marketplaces is not just the simple task of designing a mechanism that brings buyers and sellers together. It is a complex process that requires a deep understanding of the nature of the products, the economics of supply and demand for that product, the relationships between the participants, the role of information in the relationships between participants, the role of the marketplace itself as a source of information and a distribution mechanism of information to participants, and the ability of the marketplace to enable the contractual requirements of transactions to be met. ICTs can play many different roles in supporting the activities of marketplace participants other than merely providing the platform on which they meet. If the design of the marketplace and the utilisation of ICTs in the marketplace operation do not recognize all of these factors, then failures will occur. Although market participants have significant knowledge about some industries, especially markets for especially problematic products such as electricity, the design of effective and efficient marketplaces requires a blend of economic and industry knowledge. Designing governance and trading rules is likely to be far more important to a marketplace than selecting the electronic platform on which to operate it. If the governance rules, the product design or the market structure are inappropriate, then eventually the faults will be exposed. ICTs often serve only to speed up the time it takes to expose the faults. Good marketplace design thus requires the participation of all parties - buyers, sellers, brokers, etc - and experts in the economics of marketplace design. Neglecting to include any one of these will likely raise the risk of failure.
Marketplaces are continually evolving. Collapse of a marketplace is a difficult thing for the parties involved at the time. However, collapse allows learning to occur that will ultimately lead to better designs. Marketplaces may also collapse not because the original design was poor, but because changes in the environment have rendered the original models inappropriate. Operators of marketplaces must therefore be continually scanning the environment and reviewing their rules, structures and processes in light of environmental changes in order to anticipate likely problems and make the necessary adjustments.
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