This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Information Asymmetry, Taxicabs and Zillow

Stocks in this article: Z

NEW YORK (TheStreet) -- When one party has access to more or better information than another, it can difficult for the the two parties to come to an agreeable and efficient market outcome. Just think about how much power used-car salespeople and stock brokers have lost over the past 10 to 20 years. It's tough for the Wolf of Wall Street to sell you stock in shell company XYZ when you can Google search it. Information asymmetry has plagued trade economics and the spread of ideas for tens of thousands, if not hundreds of thousands of years.

Fortunately we live in an era today where information asymmetry is being studied carefully and we have the most powerful tool for spreading information the world has even seen, the internet. Today we'll look at one example of how a party with inferior information can elicit favorable behavior from another and how Zillow  (Z) has become one of the hottest stocks on the market by divulging information that was previously held by a small group of people.


When a passenger jumps in a taxicab, there is often a flat charge of $2 to $3 in addition to per mile and per minute fees. The flat charge can be a bit of an annoyance too as it often constitutes a significant portion of the total fare. But when a rider is uninformed on key information like the roads, traffic patterns, or is traveling in an unfamiliar city, the upfront charge quietly becomes the rider's best friend.

Let's face it, passengers are often subject to a huge information asymmetry barrier with cab drivers. Without the the flat fee cab drivers would love to take their unsuspecting passengers on an nice long ride making sure to go out of the way to hit all the most congested roads within a reasonable distance of the most efficient route. Here's where the flat fee comes into play.

The flat charge paid to get in a cab becomes a game changer by changing the economic incentives that the driver faces. Instead of long hauling everyone who hops in the car, cab drivers can now make more money by getting riders from point A to point B as quickly as possible. With flat fees in place the driver's incentive becomes to turn over as many customers as possible because each time he or she does there is another flat fee to be collected.

1 of 2

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 17,804.80 +26.65 0.15%
S&P 500 2,070.65 +9.42 0.46%
NASDAQ 4,765.38 +16.9840 0.36%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs