Trying to Explain Market Failures Through the Everyday

Karthik Shashidhar’s Between the Buyer and the Seller lacks depth and force-fits simplistic versions of theories to complex real-life situations.

Questions like marriage and relationships, or information asymmetries which are deeply enmeshed in social relations, hierarchies and gender prejudices, are not amenable to coffee-shop analyses. Credit: Reuters/Danish Siddiqui

Questions like marriage and relationships, or information asymmetries which are deeply enmeshed in social relations, hierarchies and gender prejudices, are not amenable to coffee-shop analyses. Credit: Reuters/Danish Siddiqui

I joined Instagram recently. Within a few days, I had received numerous messages – mostly variants of ‘Friend banegi/sex karegi?’ (which translate to ‘will you be my friend/have sex’) and ‘I am not a sleazy guy. Please believe me’. I suspect this scenario would be worse if I were on a dating app. Why do women online receive so many messages, vastly disproportionate to the number of messages my male friends receive? What is in the minds of the men sending these messages? With these questions in mind, I picked up Karthik Shashidhar’s Between the Buyer and the Seller, which attempts to analyse real-life market failures, with great interest.

Shashidhar studies markets and market failures by looking simultaneously at real-world problems and financial markets. For example, he compares the persistence of bargaining in tourist markets arising out of information asymmetry (“information is wealth”) to the historic lack of transparency around prices in stock trading, to discuss information asymmetries. By discussing problems that many readers of the book may have encountered at some point of time, he examines markets not as the subject of cold, clinical understanding in textbooks or statistical models. This is an interesting way to show how markets operate and market failures play out.

Karthik Shashidhar. Courtesy: Takshashila Institution

Karthik Shashidhar. Courtesy: Takshashila Institution

His chapter on the internet and distribution costs is interesting (“the internet has revolutionised distribution”) – he shows how the internet has reduced distribution costs by easing advertising and connected more buyers and sellers. Thus, a designer selling hand-made bead jewellery in Goa can, through the internet, connect with a customer in Bangalore and make the items available at their doorstep. Actually having a store in Bangalore would perhaps be too costly for the Goa designer. Such examples are thought provoking and make for engaging reading.

Looking at markets and market failures, especially through everyday examples, is a tempting thesis indeed, especially in the post-2008 scenario where there have been several debates on markets themselves. Shashidhar does well to select an interesting set of quirky and hip problems for consideration. But the problem with this book also lies here – examining markets offers an opportunity to engage seriously with some of the burning issues around fairness and level playing fields. However, the book does not impress – it lacks depth, has a limited taxonomy for the problems/analysis/solutions selected, banal prose and limited research, analysis and reflection.

Take the appallingly titled “binders full of women”. The literal use of Mitt Romney’s phrase, to refer to a binder with pictures of women seeking marriage, is not the only problem with it. The crux of this chapter seems to be to highlight the demand-supply mismatch in the current dating market (swarms of men vs fewer women), information asymmetry (people don’t know the quality of the person they are seeking) and the increased transaction costs here as a result of these conditions. The absence of a clearly-articulated outline identifying specific cause of failure (information asymmetry, demand-supply mismatch, raised transaction costs, congestion) makes it hard to unravel. This is compounded by the absence of any basic graphical representations anywhere in the book of the concepts discussed.

Karthik Shashidhar <em>Between the Buyer and the Seller</em> Takshashila Institution, 2017

Karthik Shashidhar
Between the Buyer and the Seller
Takshashila Institution, 2017

The chapter about finding a friend in a railway station (“if you want to live like a Roman, live in Rome”) is similarly chaotic and confusing – it is simultaneously about personal choices arrived at by summing up the most likely choices of others (finding a rational meeting point without a telephone), the decline in services due to increased transaction costs of providing them (the death of pay phones) and a demand-supply mismatch (why you can’t find feta in Bangalore) – without an evident thread, such as the type of market failure, linking them together. This lack of a clearly-delineated link between the problem and the relevant economic propositions for analysis makes the book hard to read.

A side result of this structure is that the themes get repetitive – congestion (dating, real estate markets), low aggregate demand (finding feta, finding Sringeri pickle), information asymmetry (Turkey Grand Bazaar, footballers) – but yet do not examine the wide range of causes of market failures such as those arising from imperfect competition (eg monopolies) or regulatory barriers to entry.

In this regard, the book also ignores the existing research on several areas, for example, urban studies experts theorise that urban areas, due to easier communication, may enable technological spillovers between industries to generate growth. The book carries some reductive analyses without nuance – for instance, cities may offer an industry more than a talent pool for hiring. They may offer economies of scale and scope, easier access to markets etc., but non-urban areas may offer lowered costs on key cost heads like real estate, that offset higher salary or transportation costs, or amortise negative externalities over a larger geographic area (like traffic congestion and pollution). The book also does not offer any evidence advanced for claims made – such as that Yahoo’s ex-employees in Bangalore had “no difficulty” finding jobs post a lay-off, or the claim that the Indian “economy limped back” to normalcy after demonetisation.

Most importantly, this book has a sweeping, flippant tone and force-fits simplistic versions of theories to complex, real-life situations. Questions like marriage and relationships, or information asymmetries which are deeply enmeshed in social relations, hierarchies and gender prejudices, are less amenable to coffee-shop analyses than say, the difficulties of finding Sringeri pickle outside Sringeri. For instance, calling caste-based marriages ‘efficient’ without reflecting on who it is efficient for, and why, or exploring the economic bases of socially-enforced caste endogamy, is a travesty to the very economic analysis this book claims to do. Similarly, not reflecting on the sources of information asymmetry (social structure) or the limits of rationality is also problematic.

The book falls short in examining some of the real-world consequences of markets and market failures. While it examines how to make markets more liquid, it says little about how to make them fair. In an era of increasing inequality and profound debates about the notion of markets, this book does not offer much by way of insight or material to ponder. Thus this book remains theoretical at best, and at worst, displays a disregard for the moral valence of the propositions considered.

So when I went back to Instagram after reading the book and found this entitled message, “tu reply kyu nahi karti, bitch? (why don’t you reply, bitch?)”, I could only shrug my shoulders and move on. Shashidhar’s book has given me little insight into why Indian men online (and offline) behave as they do; his congestion theory seems, sadly, to exculpate them of their entitlement, sexism and misogyny.

Sarayu Natarajan is a doctoral candidate at the King’s India Institute, King’s College London and likes learning about politics and policy.

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