An In-Depth Analysis on the Use of AI in Market Dynamics to Reduce Asymmetric Information

Abstract

Information asymmetry within consumer markets relies on the mechanism of knowledge being manifest in only one party, with a cost to the other to attain that same information. The economic theories and observations apparent in markets have been modelled to a great extent by different economists to not only cover the causation but also the predicted outcome if such imbalance exists, to varying degrees. When adding the capabilities of AI to the use for consumers, we see a dramatic increase in the information a day-to-day person can attain, seeing as traditional factors that once barrier information no longer hold, such as complexity, variety, time etc. Through active exploration of two different platforms, ecommerce Amazon and Indian food delivery platform Swiggy, different AI features and their uses are examined to determine whether they are beneficial in reducing information asymmetry. The capability of AI, as seen on these platforms, actively combats information asymmetry for both consumers and sellers, but at a much faster rate for consumers than sellers. This is because consumer-facing AI features substantially reduce the barriers that traditionally prevented buyers from acquiring and processing information, allowing them to access, compare and interpret information that they previously could not realistically obtain. In contrast, seller-facing AI primarily increases efficiency through the automation and enhancement of existing informational processes, as sellers already possess extensive information regarding their customers, purchases and other aspects of their business. Therefore, AI does not simply eliminate information asymmetry, but instead shifts the balance of informational advantage, with the current effect appearing to favour consumers more substantially than sellers. This creates a further dimension to the understanding of information asymmetry, as the issue is no longer simply whether information is available, but who is able to access, interpret and use it effectively.