Friday, 18 February 2011

Lowering transaction costs

They could both be right:
Biderman is quick to explain why his business isn't hurting anyone. "You eradicate Ashley Madison, you're not going to eradicate infidelity. That's what allows me to sleep at night," he says. "If you think that all affairs happen on Ashley Madison, you're very naive. The majority happen in the workplace. People are thrust together, that's where they happen." In that context, Biderman likes to argue, affairs can be much more damaging, by causing meltdowns at work, becoming public, and blowing up marriages. Ashley Madison and its clandestine, more transactional approach, he says, is actually a marriage saver, a public service of a kind. "Do you think if you stop allowing divorce attorneys to advertise, we would stop people from getting divorced?" he says.

According to Justin Wolfers, an economist at the Wharton School of the University of Pennsylvania, Ashley Madison provides liquidity to an illiquid market, which may make the market bigger. "The labor market is all about workers trying to find jobs and jobs trying to find workers," Wolfers said. "In the romance market, technologies like the Internet are helpful in making those matchings more efficient, so if it makes it easier to find a mate, presumably it would create more of these ventures."
Ashley Madison reduces transaction costs by matching married folks with other married folks; incentives for discretion are ideally then the same for both parties. I'd expect this to be an otherwise fairly large barrier to trade; the folks at Ashley Madison saw the deadweight costs imposed by information asymmetries as potential profits to be earned.

It would be very surprising if innovations of this sort didn't increase the number of transactions. I'd expect the market otherwise to be rather illiquid; determining who's in the market could prove rather costly.

I'd also expect that the success of Ashley Madison will help out other online ventures.

I love the data that OK Cupid regularly puts out. It would be even more interesting if Ashley Madison started doing the same.

No comments:

Post a comment