Scott Nelson
Jul 20, 2017 · 1 min read

Yes, these marketplaces tend to look at only one or two variables price and maybe rating. They compare pricing which dives the revenue received by the seller down. This tends to remove the higher qaulity from the market and you start comparing the bottom of the market with itself. That tends to drive cost and quality down.

This is why Uber sets the price instead of allowing the drivers to set the price — which I am told was their original idea until an economist point out the problem. If the driver set the price new drivers would undercut existing drivers in order to get rides. The result would be the lowest cost drivers would win when the user interface only compares price, thus incentivizing poor quality cars and drivers — hence the term “race to the bottom”. Who will provide the lowest cost for the minimum quality wins. This happens when we treat something as a commodity that really is not a commodity, something that has more attributes of value than just price.

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    Scott Nelson

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