Smart Market

"The market," as a concept, can be misleading. The stock market takes place in a central location, or a least a few locations...the large stock exchanges. But many markets exist only as theoretical concepts, with the actual transactions taking place only in one-to-one matchups. For them, there's no central market at all. Just a bunch of people making individual deals.

Consider the market for something like baseball cards. You can't just go to the central baseball card exchange. If you want a 1956 Mickey Mantle, you log into eBay and find one for sale by an individual seller.

A smart market transforms those one-to-one relationships into something closer to what exists at the stock exchanges. Instead of a series of bilateral agreements (deals between two individual parties), the smart market involves a central pool. Sellers sell into the pool, and buyers buy out of it.

The smart market reduces the difficulties and costs related to buyers and sellers having to find each other individually. It also leads to better price discovery, since its operation involves algorithms to match bid/ask prices to make a more efficient process.

Smart markets have been used for things like electricity and natural gas.