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Liquidity monopoly and search for the holy grail.

Most  businesses operate on the basis of aggregation. Business x enables a product to be cost effective for the end customer by buying the raw material or product in bulk and then slicing and dicing, re-packaging,marketing and selling on to the small guy for a margin.

 

This is how so many online trading platforms work, such as spread-betting, leveraged forex and any sports betting platforms (apart from betfair of course, which is an actual exchange!). The platform provider is offering a bid/offer in multiple products by leaning on the more efficient and liquid wholesale market. It’s too difficult and capital intensive for the small trader to access the wholesale markets, so the platform provider offers the retail version, by acting as market-maker and then laying off the risk in the wholesale market.
This is aggregation for a digital/paper product. But this is not a real marketplace.

 

A real market is when both sides of the transaction are end-customers. You are buying the product straight from the source without any intermediary, and both sides are benefitting from the existence of the market because it brings buyers and sellers together in one place and creates all important liquidity. If a marketplace is the most active for that particular product, then it is likely to dominate and monopolise that market. It is nearly impossible to shift established liquidity to a competing market. If there are competing markets with split liquidity, then in the end one will dominate.

 

This is the holy grail. To become the dominant marketplace for something. This might be betfair for sports betting, ebay for selling/buying stuff,  gumtree for classifieds, Comex for gold and silver futures, the London metals exchange for base metals, the Chicago Merc for treasury and agricultural futures – and so on.

 

Social networks such as Facebook  are good example of a marketplace whose existence is reliant on the internet, which has won the global “liquidity monopoly” race of the social networks- maybe for the moment!. Everyone is on Facebook so why user another network with less reach.

 

Collaborative consumption is a term coined by Rachael Botsman who has written on book titled “What’s mine is yours” and her website keeps you up to date on P2P and collaborative platforms operating from around the world.

 

Are we heading towards a collaborative economy where online networks bring people together to create unimagined efficiency with frictionless transactions?
 “Liquidity monopoly” also means that winner takes all. There is a land grab going on…seize the moment.

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