{"id":386,"date":"2010-12-18T12:13:43","date_gmt":"2010-12-18T19:13:43","guid":{"rendered":"http:\/\/chasingeden.com\/?p=386"},"modified":"2026-04-09T04:19:19","modified_gmt":"2026-04-09T11:19:19","slug":"what-is-the-free-market","status":"publish","type":"post","link":"http:\/\/chasingeden.com\/?p=386","title":{"rendered":"What is the “Free Market”?"},"content":{"rendered":"\t

I can’t believe I haven’t written about this before, but here goes:<\/p>\n\t

Free Market<\/strong>: When we think of the free market, it conjures up the classic example of an open air market where there are a near infinite number of sellers all right next to each other with similar items. \u00a0If you don’t like the price, simply buy it from the next vendor.<\/p>\n\t

The problem is that almost no market on the planet works like this.<\/p>\n\t

Let’s give a real world example<\/strong>: \u00a0The Grand Bazaar in Istanbul should be a carpet shoppers paradise. \u00a0There are an infinite number of carpet sellers all right next to each other with near infinite choice of carpets.<\/p>\n\t

Its a free market right? \u00a0There is lots of competition. \u00a0The prices should be great right? \u00a0WRONG. \u00a0Almost everyone is getter ripped off. \u00a0The mark-ups are unreal. \u00a0Why? \u00a0Most of the shoppers are not\u00a0savvy. \u00a0Buyers know little about carpets, and so if told a price, they think it is fair.<\/p>\n\t

Unequal access to information<\/strong> causes unfair prices. \u00a0The seller knows they bought the carpet for 10 dollars and tries to sell it to the unsuspecting tourist for the maximum price they can get, which can be 1000+ dollars. \u00a0That is the profit motive and we expect that….but unless the buyer has adequate information about the product, the market may be “free”, but it is certainly not fair. <\/strong> In this case “free market” almost certainly means “free to make a bunch of profit”.<\/p>\n\t

Information inequality is a huge source of profit in all kinds of industries. \u00a0When you buy a house, you know how much that house costs, and you know the fee that the real estate agent gets. \u00a0It is all disclosed at the closing.<\/p>\n\t

What if you didn’t know? What if the real estate agent could negotiate any price they wanted for the house (perhaps they got it at foreclosure), and sell it to you for any price they could get you to agree to (and pocket the difference)? \u00a0My guess is there would be a lot more real estate agents as it would be EXTREMELY profitable. \u00a0They could get a foreclosure, and sell it once at full price and not work for the rest of the year.<\/p>\n\t

Why can’t they do that? \u00a0Because home purchase prices are disclosed as public information. \u00a0Why? \u00a0BECAUSE IT WAS LEGISLATED THAT WAY. \u00a0Without government intervention there would be no price transparency, and so we would not be able to get fair home prices.<\/p>\n\t

Back to our example of the Carpet Shops:<\/p>\n\t

Ok, I’m sure you’ll grant that there isn’t any price transparency at the first shop you go to…but why not go to a different shop? If you shop at a few of them surely you will be able to determine the fair price<\/strong>, right?<\/p>\n\t

No. \u00a0What happens is that all the hundreds of sellers know that there is no gain to any of them if the buyer knows the fair price…so they ALL quote inflated prices. \u00a0It is silent collusion<\/strong>. \u00a0The sellers, whether explicitly or implicitly, are all in the carpet game together and they need to preserve the market. Read about the rise of simple crypto gaming formats<\/a> here.<\/p>\n\t

Collusion is illegal in the US. \u00a0There can be no fair market if the sellers all collude to keep the prices high. If the government didn’t make collusion illegal, then businesses would certainly do it even more openly than they do now.<\/strong> From our example we see that hundreds of sellers can collude silently without too much trouble.<\/p>\n\t

Think of most industries in the US (insurance, banking, healthcare, telecom, etc). \u00a0There are only a few major players. \u00a0It is so easy for them to collude, even if it is not through secret meetings. \u00a0Industries with a few major players are never “free markets” in the sense we think of.<\/strong> They behave more like unregulated monopolies, which means the consumer does not benefit. \u00a0This means that the majority of the markets in which normal people deal daily behave more like monopolies than the “Free Market”.<\/p>\n\t

Here is the kicker of the free market: \u00a0No business wants a free market.<\/strong> Not one.<\/p>\n\t

Why not? \u00a0In the\u00a0theoretical\u00a0“Free Market” (one in which there are multiple players, information transparency, educated buyers, private property protection, a lack of collusion, etc.) consumers gain at the expense of the businesses. \u00a0For business it is a blanket loss. \u00a0In business school they taught us that those are unattractive markets, and that you shouldn’t enter them. \u00a0Let me repeat: \u00a0Markets where businesses to not able to extract abnormal profits are not good markets.<\/p>\n\t

But some companies want a free market, right? \u00a0Maybe…if it is not in their core area of business. \u00a0For instance, Google might want Net Neutrality (unfettered access to anything put on the Internet) because the more people are on the Internet, the more money they can make. \u00a0Their potential market expands through net neutrality. \u00a0Let me state it more plainly: \u00a0For Google to make money off of you, you have to have internet access (otherwise you can’t use their services). \u00a0Not only does Google want Net Neutrality, I’m sure they would like everyone to have free internet.<\/p>\n\t

What about the companies selling internet access? \u00a0I assure you they do not want everyone to have free internet. \u00a0So one company’s “free market” (Google’s) comes at the expense of another company’s\u00a0profitable market (Internet Service Providers).<\/p>\n\t

“Free Market”. \u00a0It seems that term means that businesses are free to do what they want<\/strong>, even at the expense of the customer. \u00a0The Free Market is largely fictional in practice and relative to the company saying the market is free.<\/strong><\/p>\n\t

When a company advocates the free market, they mean they want the market open for them….which means it isn’t open for others.<\/p>\n\t

To summarize: \u00a0A “free market” requires all kinds of\u00a0prerequisites\u00a0to make it work in the way that benefits the consumer (i.e. us).<\/p>\n\t

____________________________________________________________<\/p>\n\t

The question is: Where do these prerequisites come from? <\/strong><\/p>\n\t

There is only one answer to that question: \u00a0The government.<\/strong><\/p>\n\t

The “market” is not self-regulating, nor does it protect\u00a0the\u00a0consumer. \u00a0The Market is simply the field on which businesses play. \u00a0They want that field as uneven as possible so they can make a profit. \u00a0(As a reminder profit always comes from somewhere. \u00a0It comes from us.)<\/p>\n\t

The government counterbalance is to rig the playing field so that businesses have to compete against each other, which benefits us.<\/p>\n\t

It is not in business’s best interest to compete.<\/strong> Their whole market loses and the customer gains. \u00a0To go back to the carpet sellers in Istanbul: <\/strong> If the government mandated that all carpet sellers must include the original purchase price on\u00a0the\u00a0carpet before selling it so we could determine a fair price (like homes, where purchase prices are public), then in the end there would still be carpets for us to buy (we would lose nothing), but the profit margin for each seller would be\u00a0dramatically less (they would lose a lot).<\/p>\n\t

The carpet sellers would never agree to lower prices on their own<\/strong>. \u00a0The government has to force them to do it. \u00a0If some seller came in and priced fairly, the other sellers would collude to make sure he loses the lease on his storefront or in a completely unregulated situation would simply threaten force against him.<\/p>\n\t

Why do we need the government though? Why can’t WE, the consumers, demand that companies self-regulate?<\/strong> Why can’t we vote with our dollars and just not buy?<\/p>\n\t

I think the primary one is that businesses are organized. \u00a0Consumers are not. <\/strong> Businesses can collude in the best interests of their market. \u00a0They are limited in number and focused on the parameters of their market. \u00a0People are living their lives. \u00a0We are not focused or organized.<\/p>\n\t

Besides we have already have a mechanism for consumer advocacy…its called government. \u00a0They are the group that is focused and organized and designed to speak on our behalf. \u00a0In fact, “on our behalf” is supposed to be the only job they have.<\/p>\n\t

To ask a\u00a0Machiavellian\u00a0question:\u00a0If the counterbalance to corporate power is government power, then what should the corporations do to maximize their power? \u00a0They should buy the government. \u00a0Voil\u00e0. \u00a0That is what they are doing.<\/p>\n\t

So. \u00a0What is the”Free Market”? \u00a0It is the term companies use to sound like they are acting in our best interest when they are trying to bend the rules of the market in their favor.<\/strong><\/p>\n\t

Ouch. \u00a0That’s cynical.\n<\/p>\n","protected":false},"excerpt":{"rendered":"

I can’t believe I haven’t written about this before, but here goes: Free Market: When we think of the free market, it conjures up the classic example of an open air market where there are a near infinite number of sellers all right next to each other with similar items. \u00a0If you don’t like the […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_newsletter_tier_id":0},"categories":[1],"tags":[28,72,59],"jetpack_sharing_enabled":true,"jetpack_featured_media_url":"","jetpack_shortlink":"https:\/\/wp.me\/p3IMYj-6e","jetpack-related-posts":[{"id":320,"url":"http:\/\/chasingeden.com\/?p=320","url_meta":{"origin":386,"position":0},"title":"The stock market is a meaningless ponzi scheme.","author":"kellio","date":"June 16, 2010","format":false,"excerpt":"There.\u00a0 I said it. 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