E-Commerce and the end of market failure

The invisible hand is shaky, sometimes it drops things. Many people would accept this as collateral damage, no system will always work perfectly, but instead it is used as the justification by most major world governments to regulate and take control of industries much more efficient under market forces. The rise of e-commerce is a handy wrist brace for the invisible hand, it helps prevent broken plates and gives states fewer chances to step in. This happens in myriad ways, but I’ll explain three- the magic number.

The first market failure it all but eliminates is asymmetric information. If you go to your local independent technology store, you don’t know anything about what you’re buying. You don’t know if the Apple Macs are real, if the chip and pin machine will steal your details, if the product you buy will even work or if anybody will give you money back when they break. But if you go to an online independent technology store, all this is available in a few short clicks. Google marks trusted shops for you, it tells you your details are safe, plenty reviews give you the quality of the product and typing the name of the store followed by “scam” will give you hundreds of reports from ad-funded consumer watchdogs. Of course, a store could theoretically build up months and months of good reputation just to rip you, dear reader, off, but that is in nobodies interest. Your bad review will mar them forever, and they need your business when you come in for your next generation computer in a year or two.

“But what about monopolies?” I hear you cry, “Can’t monopolies still exercise monopoly power over consumers?”, and your complaints are heard. By and large, no, they can’t. E-commerce cuts away the vast majority of barriers to entry for new firms. No bricks and mortar store, easy outsourcing and a range of competitively priced graphic designers brings start-up costs down to mere hundreds rather than thousands. If a company is using its monopoly power to make abnormal profit, a second firm can step in and do the same thing a few pounds cheaper. This keeps prices down for consumers without ill-thought-through government determined price ceilings or cronyist subsidies. Of course, natural monopolies such as oil and gas remain, but that is a tiny proportion of the monopolies consumers must deal with on a daily basis.

Finally, e-commerce just gives far more choice to consumers. Take the example of a t-shirt, it is now far easier for me to signal my preferences of what I want in a t-shirt. If I want one for cheap, I use a Chinese importer, if I want a brand name, I go to that brand’s website, if I want to annoyingly virtue signal to everyone around me, I buy a The Future Is Female shirt from a small business operating on Ebay, Etsy or some other hosting site. Not only does this give consumers more choice, but the ease with which preferences can be compiled into metadata and distributed makes it far easier for the market to respond to consumer demand.

E-commerce is letting loose the invisible hand from the shackles of government intervention, and curing it’s carpel tunnel in the process.