Markets In Action

How Popular Rideshare Apps Illustrate Markets

Rushing to get to a job interview on the other side of town, you whip out your smartphone and open the app for Lyft or Uber, popular ride-sharing services to find a driver. Within minutes, a car pulls up to the curb next to you. You climb in and are whisked on your way.

At the most fundamental level, you just participated in a market transaction that connected a buyer (you, needing a ride) with a willing seller (the driver, needing a fare).

Without that quick and convenient service, you might have wandered around for quite a while in search of an available cab, or the driver might have circled the block repeatedly in hopes of coming upon a paying passenger.

In both scenarios, resources are generally not allocated for its most productive use — neither you nor the driver are getting what you need. In the driver’s case, that can mean wasted time and lost income; in your case, you might miss your interview.

A similar kind of market transaction, with the same benefits of connection, exchange and efficiency, happens through the capital markets. Capital markets allow those who need capital to connect with someone who wants to invest their money and see a return. They are brought together in the same spirit of mutual exchange.

Capital markets can connect an entrepreneur who wants to sell shares in his or her company to raise funds in order to expand the business; or maybe it’s a local government that wants to raise funds through a bond issuance to pay for new hospital, school or highway. The buyers can be retirement fund managers or other investors who have a pool of capital they want to see productively put to work.

And who facilitates these transactions? Underwriters and broker-dealers who bring buyers and sellers together and facilitate an exchange while creating an efficient flow of capital.

Whether it’s the New York Stock Exchange, NASDAQ or an eBay auction — markets play a key role, just like ridesharing services, in matching buyers and sellers, which helps to allocate resources efficiently and put them to its most productive use. That’s a win for both sides of the market.