“If you don’t like it, don’t buy it, if you don’t like the company, buy from someone else, it’s a free market”
I remain unconvinced that the ‘free market’ model inevitably results in value, safety and other benefits for the consumer.
I’m thinking primarily about mega-corporations, who have the financial resources to push out a product at ultra-comeptitive prices, driving the competition out of business (or driving them out of the particular market, at least), then when the coast is clear and everybody is ‘hooked’, they are free to do pretty much as they please, particularly in areas such as software, where the end consumer has not only to look at the issue of what is best in terms of function and value, but has to consider industry standards; divergence from industry standards may be a disadvantage, even though adhering to the standards implies loss ro restriction of function.
If we’re talking theory, then I think the theory of a free-market economy is great* - people create a product; try and sell it at a price marked-up from their production costs; other people come along and look at the range of variations on the prooduct theme and decide what quality of product they want and what price they can afford and make a purchase accordingly; those products that prove popular raise their prices as demand increases; the less popular products drop their prices, aiming to make up the loss by selling more.
In real-life things don’t work that way - more’s the pity…
*I also think that the theory of democracy is fantastic - but in practice, it turns into a Dictatorship of the Masses
Say you have two widget makers, Amalgamated widgets and Bob’s widgets. Amalgamated has 90% of the market and Bob’s has 10%. They both sell widgets for 10$ each and have a profit of 1$ on each widget. Amalgamated decides to drive Bob’s out of business by charging 9$ per widget. Since they have nine times the market share of Bob’s they are losing money hand over fist. Bob’s can not compete and goes out of business. Amalgamated now has 100% of the market but is way in debt. Now they jack the price up to 12$ per widget in order to recoup some of their losses and try to get into the black again. Jack who was Bob’s vice president sees this and starts Jack’s widgets selling for 11$ per widget. Amalgamated is losing market share and has to lower prices back down to 10$. Jack lowers his price to match and equilibrium is reached again with Amalgamated having 90% and Jack’s having 10%, but now Amalgamated has debt service payments and therefore less profits.
Look around the room you are sitting in right now. It is filled with hundreds or thousands of products, the vast majority of which were created with little or no government involvement in any way. Look at the computer you are typing on - almost completely devoid of government regulation, a free market system allowed that computer to become the amazing thing that it is. Everything in your house from your flooring to the nails and screws in the wall work as advertised, provide a high level of satisfaction at a good price, and allow us in capitalistic countries to live a lifestyle that is 10 or 20 times more wealthy than people in those countries who refuse to allow the market to dictate the vast majority of human affairs.
For some reason, people today have this impression that it is government that protects us, that protects the quality of our goods, and without it we would have chaos and every company would suddenly start trying to screw the consumer. The reality is that the government’s budget for departments that interfere with internal markets (OSHA, FDA, etc) is but a very small fraction of the GDP, and generally only applies to a small fraction of all the goods and services around you. The rest of those goods have quality and value that is determined ONLY by the dictates of the free market system.
Labor laws generally only have an impact on a small percentage of the population - the vast majority of people have working conditions dictated by the market alone, because they are much better than the minimum government standards.
Government creates no wealth. Wealth is created in the marketplace. All the government can do is operate in the ‘margins’, making small rulings here and there that have positive effect, and making just as many rulings that actually hurt consumers. For instance, trade unions have managed to get governments to enact all kinds of ‘closed shop’ rules that remove competitive pressures. The worst examples of corporate excess have always come when the corporation manages to attain special status from the government, as the railroads did at the turn of the last century, and the airlines did in the middle of it.
Yes, the markets work. Yes, they are your best guarantee of being able to buy quality products at good prices.
I was responding to the criticism of free markets used in the OP, that predatory pricing will lead to monopolies and subsequent infefficiencies. Predatory pricing is generally a myth and inefficient monopolies are almost impossible without governmental support.
Naah. There are lots of situations where markets reach less than terrific outcomes. Monopoly, oligopoly, monopsony (a single buyer), asymmetric information, principal/agent problems, externality, joint consumption, missing markets… (and that’s just microeconomics) However, the extent to which these are really a quantitatively significant problem is controversial, particularly when your time frame is 10 years rather than 1 year. And the extent to which governments do improve on market failures even when in principle they can is unclear.
In the case of market power due to (say) first-mover advantage or cost advantage due to scale economies it is uncontroversial to say that predation of smaller firms(usually through non-price competition) or (explicit or implicit) collusion reduces or eliminates effective competition, which raises prices and reduces quantities, choice and within-firm innovation (and that this is a bad thing). But it is questionable how long such market power would last for most industries in the absence of government intervention. Probably still true for electricity distribution, probably no longer for telcos. It is arguable that it is government intervention itself that typically sustains market power, and that even if it doesn’t, that the cure is worse than the disease. Monopoly regulation is a clumsy beast without easy access to the sort of cost information required to be truly effective. It may be that the regulator becomes an encumbant monopolist’s most effective weapon against competitors.
I think that these arguments carry a fair bit of weight but don’t outweigh the arguments in favour of some trade practices/ monopolies and mergers/ anti-trust type action. I’d be in the majority of economists on this, although there are some very serious people on the other side.
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Cant piffle. Governments create the conditions for markets. Without them, no contracts would be enforceable. Do they they therefore create all the wealth?
To me, there seems to be a huge demand for affordable housing. Almost all the home constuction I see is for expensive homes. You would think that somebody could come up with a building design that would be reasonably cheap. It might not be much to look at but it would be inexpensive and it would be home. Huge demand, free market not providing supply. Even with cars there are inexpensive cars on the market like the Geo Metro. Is this a possible real world example?
Ahh, the free market—my hero. Where man can set his own terms each time he walks into the store.
Or not. I dunno, why do you need convinced? You think socialism is better?
It can, but that depends on who interacts in the market, doesn’t it? Its a free country, but not that free. If it were entirely free I could kill everyone until a lynch mob came and killed me. But would I? Well, not I… someone might though. Hell, some people do it anyway, even with laws in place.
If you remain unconvinced that a free market results in better “stuff” then I don’t think much can convince you.
The market alone will do nothing but respond to the drives and desires of the people who interact in it. so a free marekt will most accurately reflect the impulses of its components. How much you like a free market represents how much you think of people. What do you think of that analysis?
erislover, I know–I just know–that you’re too smart to be this willfully disingenuous. Because clearly our choices are 1) the free market and 2) socialism, right? Either the market’s free or it’s not free? C’mon.
IANACW, but I do know that home construction is one of the most regulated industries. In my locality in order to build new homes a builder has to submit plans to a board and provide free land for public parks, and schools. There is a limit on how many houses can be built per acre and a large fee for each new home. All this adds thousands of dolars to overhead even before the ground can be broken. Add to this the political pressure against building any new houses and it is almost impossible to build affordable housing even if you wanted to.
Sam“Look around the room you are sitting in right now. It is filled with hundreds or thousands of products, the vast majority of which were created with little or no government involvement in any way.”
Looking around me I notice an airline ticket issued by one of the beneficiaries of a $15 billion taxpayer-funded bailout. I notice a TV set that (if I ever turned it on) would broadcast the same basic crap under cover of superficial variety, 97% of which is controlled by seven different monliths (or are we down to five now); a media oligopoly whose ability to bypass the public interest doctrine is guaranteed by an FCC and a Senate committee that are completely in the hands of the broadcaster’s lobby.
Once again, Sam, you entirely miss the point. It’s not just that markets depend on the stabilizing effects of government, it’s also that today’s government has, to a large degree, been coopted by corporations. There is corporate welfare, there is the use of US power to forward corporate objectives abroad, there is a massive shift of taxation from corporations to middle and low income individuals. Wake up and smell the Starbuck’s coffee Sam!
And erislover, please, spare us the facile contrast between the “free market” and “socialism” (what you say afterwards indicates that you know it’s more complicated than that). Socialism involves the collectivation or nationalization of wealth, property and the means of production. The use of government to regulate, curb or otherwise influence the dangerous vicissitudes of capitalism has, by contrast, been advocated in one form or another since Adam Smith.
I see an operating system that has such shoddy security that it breeds more bugs and viruses than rats and roaches in a junkyard, from a monopolistic company whose idea of innovation is copying other people’s ideas and using their monetary might to intimidate copetitors out of the marketplace. Anyone who disputes these items is welcome to go read The Microsoft Files, which documents the dirty tricks used by said company to detroy the very free-market model Sam Stone is espousing.
Now, granted, I don’t think an all-government solution would be better, but I’ve long felt that consumers are best served when both sides are in balance. Let the companies duke it out in the free market playground, but have the government step in and take the bullies to detention when things get out of hand. As hawthorne noted, there are lots of situations where markets lead to poor outcomes; it’s good to have a higher authority step in and fix things when that happens.
Maybe this particular situation is a result of govt actions? Imagine affordable housing in single units that people could purchase. Can such a thing be created without violating tons of laws and regulations?
Affordable housing has traditionally meant renting an apartment. But there seems to be a perception that owning such a building is not a good investment for a number of reasons, one being the legal difficulties in evicting a tenent who stops paying rent, starts dealing drugs, or is otherwise a problem.
The free market sounds so good. To me as a consumer, anyway. But how much real competition is going on in the American marketplace of today? If every conveience store (or every hardware store, or every grocery store, etc.)in the NY Metro area sells pretty much the same stuff, at pretty close to the same prices, are they really competing with each other? If every bank in the US offers the same services, has the same policies, charges the same fees, are they really in competiton?
rung said, “…it’s good to have a higher authority step in and fix things when…” necessary. But I think Mandelstam has it right. Govt isn’t fixing anything. It’s aiding the corporations, not the general public.
Puddlegum and Hazel, so you’re saying that lack of affordable housing is because of government taxes and not because of a failing of the free market? You could be right but then why do governments do this? Is it because they want all the people who can’t afford expensive housing to live elsewhere or do they have another reason? If there was much less would there really be a much greater supply of affordable housing?