Who Gets What – and Why summary

Markets control everything, from the coffee you buy to the schools your children attend.

In a classic commodity market, price is the only factor determining who gets what. The mechanism here is simple: you decide what you want and, if you can afford it, you buy it.

Taking a step back, the term “commodities” refers to goods that can be bought and sold in batches, like bushels of wheat. Since each bushel is essentially identical to every other bushel, price is the key factor in deciding whether a customer buys one.

But some products can’t simply be classified as commodities. For instance, iPhones aren’t identical to every other smartphone in the market; therefore, someone who chooses to buy an iPhone over a Samsung Galaxy doesn’t base their decision solely on price, especially since the costs are comparable.

These so-called matching markets are complex. In the most sophisticated kinds of matching markets, both the buyer and the seller have to “choose” each other.

After all, you can’t buy a job at Google, nor can you buy a romantic relationship; in both cases, we’re dealing with matching markets.

To be clear, a market involves matching whenever price isn’t the sole determinant of who gets what. And in some cases – especially when dealing with scarce resources – money doesn’t even enter into the equation (think of kidney transplants or public school spaces).

The thing is, scarcity of resources can create problems for both buyers and sellers in matching markets. And in some cases, inadequate information can lead to bad matches.

These blinks will unpack these failures and advance some proposals on how to improve matching markets. So read on!