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Viewpoint: Living and Bidding in an Auction Economy

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The greatest barrier to an optimal free market is imperfect and costly information; to the extent that any buyer or seller is unaware of the other, economic opportunity is lost. In traditional markets, time, geography, language—and a host of other factors—have all been barriers to the complete exchange of information necessary for a perfect market. With the continuing evolution of the Internet, these structural impediments to the efficient exchange of information are obviated; we are entering the era of the perfect market.

On its face, this observation may not seem earthshaking; most people understand that the Internet has created phenomenal opportunities for new business. But it is not the dot-com phenomenon that fundamentally changes how we will work and live in the future; the dot-com enterprise, when one cuts through the hype, is basically a traditional business. What will dramatically change our economic and social experience is a marketplace characterized by a frictionless and very low-cost flow of information between buyers and sellers. Because of the cybermarket’s free-flowing information, dynamic pricing can occur, that is, goods and service are priced according to the specific characteristics of supply and demand at the time of purchase. Essentially, an auction economy will gradually evolve, where goods and services are priced at the time of purchase, through a bidding process by buyers and sellers. Although auctions are certainly not new, the idea that all (or most) goods and services can be auction-priced has radical implications for both individuals and business organizations, as well as the greater economy.

The importance of the auction economy is illustrated using content analysis similar to John Naisbitt’s in Megatrends [1]. The accompanying figure shows a 10-year track of articles related to the Internet auction phenomenon; clearly, the auction market is a “megatrend” in every sense. Accepting then that this cybermarket will continue to evolve and subsume an ever-broader range of goods and services, we believe that this cybermarket will significantly affect both the economy and the broader social condition.

The most apparent impact of the auction economy will be an increasingly diverse variety of goods and services. Because of the efficiency of this new market, along with increased production flexibility associated with advanced technologies, highly specialized goods and services that would have lacked the critical mass of clientele necessary to enter the market will appear. This increasing diversity of product will couple with the evolving trend toward mass-customization to create an increasing range of products idiosyncratic to specific customers. Since this market creates a significant information flow both to and from the consumer, organizations will anticipate evolving consumer needs with far greater precision than currently possible. The combination of dynamic pricing and the rich information exchange between buyer and seller will limit mass marketing to only the most fundamental of commodities.

To serve this marketplace, firms will become more focused and more specialized. Economies of scale will continue to be important in forming effective supply relationships and the exceptionally dynamic nature of the auction economy will require firms to be lean and nimble to respond quickly to evolving market opportunities. Thus, although firms will be significantly larger in terms of their market clout, since they will be unburdened by much of the rigidity of traditional organization, they will have the highly adaptive characteristics of considerably smaller firms.

To have the human talent necessary to meet this challenge, firms will develop personnel networks that will provide expertise on a just-in-time basis, for a bid-set fee. As this type of personnel networking becomes an organizational norm, historic patterns of individual work will be permanently altered. By the end of the next century, few people will work continuously for any organization; instead, they will bid for service opportunities in a business-to-worker marketplace analogous to the currently evolving business-to-business marketplace. Because they lack organizational identification, individuals will form a variety of professional associations through which they will obtain medical and retirement benefits. These associations will also work with employers to coordinate matching skills and positions.

The auction economy will have a subtle, but important, influence on the broader social context as well. As individuals disassociate from traditional organizational memberships, customary benchmarks of success, identity, and community membership will be lost. Since human needs remain constant in spite of a dynamic social context, individuals will look for new sources of identity and social validation. Some of this need will be satisfied by the professional associations, which will become the focal point of an individual’s work life; association members will have roles, ranks, certifications, and titles reflecting their experience and competencies. Individuals will also begin to self-define their personal community. As people are less constrained by the geography of their employment, they will increasingly reside in areas conducive to their leisure lifestyles, which will significantly change the demography of both urban and rural communities.

While the efficiencies of the auction economy offer the possibility of exceptional growth of the economy as a whole, there will be a significant social challenge to ensure that this growth does not create an underclass of have-nots who are unable to maintain economic viability in a service economy driven by intellect. Unskilled labor has little value in a knowledge-processing economy, and the greatest political and economic challenge of the coming century will be to find mechanisms through which the less gifted members of our society can participate meaningfully in the new economy. If this challenge can be met, the auction economy promises a remarkable quality of life and material well-being in the coming century.

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F1 Figure 1. 10 years of Internet auctioning.

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    1. Naisbitt, J. Megatrends. Warner Books, New York, NY 1982.

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