The new markets are changing the way business is done. Potentially, both buyer and seller will gain. Such dramatic changes were difficult to imagine 20 years ago, said Friedman, who will explore cyberspace markets with Bernardo Huberman, a research scientist who runs the computational dynamics group at the Xerox Palo Alto Research Center. Different market formats have evolved to match buyers and sellers, ranging from random search and haggling to posted price and auctions, said Friedman. The efficiency of different market formats depends on the nature of the goods or services being exchanged and the conditions of the environment.
Electronic markets can also create new problems.
Random trades in an effort to show a quick profit are wasteful to society. In the long run, it is not much more profitable to the trader than Las Vegas, so maybe the problem will take care of itself. Individually, such a tool posed little threat, but its widespread use caused the most serious stock market crisis since 1929, said Friedman. Ultimately, Friedman would like the results of this research to be made accessible not only to other academics and the people designing new markets but also to the policymakers who will be shaping regulations regarding electronic commerce.