I’m studying and need help with a Economics question to help me learn.
how much it affects markets is the presence of information asymmetry in transactions. These are situations in which one side has much more information than the other.
The internet has crushed information asymmetry in a lot of industries. Some things are as simple as being able to much more easily shop competitor prices or selection before buying – but this was not easily done 25 years ago! Some are more complex, like car buying transactions, where consumers now have easy access to dealer invoice pricing, interest rates at a variety of lenders, etc. But there are definitely places where information asymmetry persists.
A few that I can think of:
- Healthcare: When you go to the doctor, do you call around on price first? Would you even know how to ask about pricing? What about the sort of equipment they have in their office versus the doctor up the street? What are the health outcomes for your surgeon? This market is still very opaque, and I firmly believe that the information asymmetry in this market is a big part of the reason why prices continue to rise faster than other sectors – consumers just don’t know (and if they are insured, they may not care) what they are going to pay for care.
- Insurance markets: This also reaches toward the adverse selection/moral hazard section of our conversation, but when an insurer agrees to take a customer on, they often know very little about the habits or risk-taking behaviors of the customer.
- Universities: I feel like this has gotten much better. It’s easy to see graduation rates, job placement, majors, rankings, etc. now. But what about costs – we all can see the “sticker price” of university education pretty easily, but is that the real price? How can you know what you might qualify for and what may be the “actual price” of education without significant work?
I would like you to share a specific time when you have seen information asymmetry in a transaction. How did you (or the person you observed) deal with it? Do you think the best deal/outcome was reached? You can either comment on any of the industries I mention, or share some other situation that you have had experience with.