In the open thread, I made a casual comment that I’ve become a bit more skeptical of market efficiencies lately. Remember, in the perfect market, the profit of the firms should converge upon zero. Is this to anyone’s benefit? Obviously, it is to the benefit of the consumer. But what happens in the long term when firms can’t make any money?
This crossed my mind recently in regards to Craigslist. Craigslist is notoriously no-frills and reflects an aesthetic and functionally stuck in the year 2000. The founder, Craig Newmark, is a pretty weird person. The company has 50 employees and does not maximize profit. But Newmark and Craigslist have had a culturally huge impact. They destroyed the newspaper classifieds.
And yet Craigslist stays stuck in the year 2000. This was obvious to me when they went after Padmapper. Padmapper was clearly a service which added value to Craigslist. And yet today I wonder if this behavior by Craigslist actually allows it to continue providing the services it does.
Imagine that Craigslist opens up its API and all sorts of other web applications develop around it. What I can imagine is that Craigslist would become the locus of massive and highly efficient arbitrages. Consider programs which match buyers and sellers in a way which minimizes the “deals” that sellers can today gain from buyers who are naive. Perhaps instead of two people going into an exchange, an ecosystem of “runners” who would transport products.
My thoughts on this are vague and cloudy, but perhaps reduced efficiency and rationality actually means Craigslist can persist for far longer?