Jim Price Explains Why Smart Entrepreneurship=Arbitrage

Shannon Beeman
March 7, 2013

Is smart entrepreneurship essentially arbitrage?  According to Jim Price, yes.  To find out why, check out Jim’s latest contribution to Business Insider.

Market Flaws Are The Lifeblood For Entrepreneurs


n.  The opportunity to buy an asset at a low price, then immediately sell it on a different market for a higher price (Glossary of Economics Terms) 

ef-fi-cient mar-ket

n.  Market where all pertinent information is available to all participants at the same time, and where prices respond immediately to available information. Stockmarkets are considered the best examples of efficient markets (Business Dictionary) 


n.  Person who finds an inefficient market and makes it more efficient through the creative delivery of products, services or information   (Jim Price)

All smart entrepreneurship is essentially arbitrage.

What, you ask?

The Efficient Market Hypothesis tells us it’s impossible to “beat the market” in stocks or bonds because the market is effectively perfect – that is, the efficiency of information flow enables all participants to have the same information at the same time, and thereby “…causes existing share prices to always incorporate and reflect all relevant information” (Investopedia).

Arbitrage in financial markets is the art of detecting what are called market inefficiencies – slight, temporary differences in the price for something, in this case a security – and purchasing it at one price and quickly selling it at a higher price, thereby making a profit. The argument goes that so-called arbitrageurs make financial markets more efficient by closing such price differences (and profit nicely in the process).

But what about other (non-financial) markets – markets for products, services, and information?  Are those markets as efficient as the stock market?

Hardly ever.

And that’s where we entrepreneurs – and intrapreneurs – come in.

For the complete article, visit the Business Insider website.