...by Daniel Szego
"Simplicity is the ultimate sophistication."
Leonardo da Vinci

Wednesday, April 12, 2017

Supply demand analysis on the robo-advisor market

Analysis of the robo-advisor market from the supply-demand perspective can be seen on Figure 1. Robo advisor market is characterized by the demand characteristic of a standard IT good, meaning that as soon as it is profitable to roll out a a robo-advisor there is a possibility to produce as many additional replicas or copies as needed practically for a zero additional price. 

Let we consider S1 as a standard supply curve without robo-advisors, S as the supply curve with robo advisors. Market equilibrium will be pushed off from the original {P1, Q2} point to the  {P2, Q1} new equilibrium manifesting in a P1 - P2 price reduction and Q3 - Q2 general quantity increase on the market. It is important to note however that Q3 - Q1 quantity is not produces by humans anymore, meaning that comparing to the Q3 - Q2 jobs have been automated comparing with the original market equilibrium.

Certainly the model is ideal, it considers only the characteristic of a market segment on which the robo-advisors can produce a high quality service. Certainly segments might remain where the human competence and experience is still needed and the segment can not be served by automated robo-advisor services. 

Figure 1. Supply demand analysis of the robo-advisor market