A large component of the Indian economy is still in the unorganised or informal sector. The unorganised sectors were estimated to contribute to over 50% of the country’s Net Domestic Product (NDP). The emergence of new intermediaries leveraging the Internet has contributed significantly to organising these hitherto unorganised sectors. Using a platform business model, these intermediaries bring together buyers and sellers through formal means. Such intermediaries seek to replace traditional “brokers” or “dealers”, and perform the same tasks – facilitating search/ discovery, matching, price discovery, and transaction.
We discuss the case of the Indian real estate sector and elucidate how Internet-based intermediaries have mitigated the problems associated with the unorganised nature of the industry. Using large data and continuous formal engagement with buyers and sellers, these intermediaries have the potential to be far more efficient than traditional brokers. The three primary problems associated with the unorganised nature of industries are adverse selection, moral hazard, and weak contract enforcement. Leaders representing four leading real estate platforms discuss how organising the real estate business as a platform business model helps mitigate these risks. They talk about how formal business engagement, transparency in transaction, and leveraging cross-side network effects help Internet-based formal intermediaries mitigate the aforesaid risks.
