Sound decision-making requires access to timely and accurate market information, yet this information is often limited for informal market participants like farmers and traders in the developing world.
Studying how to improve the economics and digitisation of large informal markets, MIT Sloan School of Management Prof Joann de Zegher suggests that crowdsourcing price information from market participants through a carefully-designed information-sharing platform can improve decision-making and increase revenue.
“About 60% of the global working population make their living in the informal economy, which often means that they rely on word-of-mouth information and create verbal agreements. According to the International Labour Organization, informal economies tend to have a high incidence of poverty, so an important goal is to improve their economics and support a transition to formal economies,” says de Zegher.
In light of the rapid growth in mobile phone adoption in the developing world, de Zegher is looking at whether a digital platform could be used to efficiently crowdsource market information to improve decision-making for all suppliers.
“While the idea of crowdsourcing information is not new, a distinct feature of this setting is that the people who are asked to share information compete directly with the people who will be using that information. This creates a tension and raises the question of how we could increase widespread access to information while not distorting competition,” she says.
To address this issue, de Zegher and her colleague Irene Lo at Stanford designed an algorithm that helps ensure that all participants who share their privately held market information on the platform benefit from doing so, and do not witness a competitive disadvantage.
“The key is that in competitive environments, the platform can’t just disclose all information to all market participants all the time because this changes the competitive positions of competing firms,” explains de Zegher. “Our algorithm discloses information carefully to ensure that competitive positions remain balanced, while also ensuring they provide the maximum amount of information to everyone.”
The researchers are currently testing the effectiveness of their proposal in a field experiment in Indonesia and conducting follow-up studies, including how platform design and market characteristics influence the impact of price transparency on price responses.
“If this incentivized crowdsourcing approach works, it could significantly increase widespread access to market information in informal and fragmented markets like rural supply chains in the developing world,” says de Zegher. “This would have a significant impact on the income of informal farmers and traders in rural locations, who are among the poorest in the world, and would advance digitization of transactions that are currently invisible.”
de Zegher is coauthor of “Crowdsourcing market information from competitors” with Irene Lo of the Stanford School of Engineering.