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Adverse selection is an interesting topic that has been actively discussed by economists during the last few years. It is a term that is used to describe behavior that is demonstrated by certain buyers that take advantage of information asymmetry to get deals that are most beneficial for them (Morris, Stephen, and Song Shin 1). It needs to be said that adverse selection may set back the market as a whole, and this fact should be taken into consideration (Philippon and Skreta 1).
Aspiro is a company that operates on a rather new market of streaming services. It should be noted that the firm is struggling at the moment, and it will not be an easy task to address all of the issues that are present. Adverse selection should be viewed as an extremely dangerous factor because the company needs to make sure that customers are retained, but it is nearly impossible because there are such competitors as Apple and Spotify.
The company offers unique content and superior quality of audio. However, one of the biggest problems is that most customers take advantage of price reductions to gain access to music and videos that are provided and do not have further intentions of using the service. It may cause servers to go down, and it could affect the experience of others. The presence of such subscribers cannot be viewed as beneficial, and the company needs to focus on consumers that are loyal. Aspiro should review the current strategy and consider the development of long-term subscription plans to develop relationships with the customers.
In conclusion, the biggest issue is that some firms have a better understanding of risks that are associated with particular economic decisions, and it gives them a significant advantage over competitors. It is imperative for every company to consider adverse selection as a major threat.
Morris, Stephen, and Hyun Song Shin. “Contagious Adverse Selection.” American Economic Journal.Macroeconomics 4.1 (2012): 1-21. Print.
Philippon, Thomas, and Vasiliki Skreta. “Optimal Interventions in Markets with Adverse Selection.” American Economic Review 102.1 (2012): 1-28. Print.