Saving "the Market” out of Cambridge: “Arbitrage and the One Price”

 

Occasion #1. At present, the mega-apple sells @$3.00 at Walmart and @$5.00 at Trader Joe’s. Where would you in the right mind make the purchase?

Occasion #2. The Cruiser Tom offers a trip to the Antarctica @$1,000 today and @1,030 a year hence. At your time value of money of 2% per annum, when would you make the once-in-lifetime trip?

Occasion #3. The mega-apple selling @$4.00 renders 4,000 calories and the supra-orange @$6.00 7,000 calories. Which would you as calorie mania buy?

 

            I have the answer in my mind which usually stays right. Then, your choice is as rational as mine. As people move in droves, there will be only one price prevailing in the free market of voluntary choices, so to speak.

 

Interspatial arbitrage. At the same point (read: a short period) in time, prices tend to be equalized into one across space.

 

Intertemporal arbitrage. As for the same marginal utility, we prefer as the consumption timing the present to the future by the “time value of money” as called in the discipline of Finance. Such a value is up to the person and specific to the situation. Nevertheless, researchers seem to propose (between lines) it to be 2% PA.

            The way of thinking must be rational in that there is no guarantee that one will be in Here in the future. Most of us would prefer as residence Here to Eternity.

 

Inter-substitutive arbitrage. You are no slave of marketers, but your economic mind surely leads to the buzz-word “value proposition” or “bang for the buck.”

 

See I told you so: There is only one price all over the time and all across the nation!

Scott McKenzie - San Francisco

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