Nature of Competition: The Price as Baton

 

In modern times as opposed to the hunter-gatherer age among other ears, we live in a community where trade is a matter of everyday life. There in the community are various marts and marketplaces, respectively open for indefinitely many kinds of goods and services.

             Take the apple for example out of so many products on the shelves. In practice, each household goes to a mart of choice and purchases the apple at a price specific therein. On the flipside, the choice of neither the mart nor the price at the chosen is arbitrary: either is the best choice of the week made after voluntary thinking at the margin, which in turn is with all things taken into account. Milton Friedman would say, “Free to Choose.” At any rate, all choices must be under the rule of law: freedom comes at the cost of building the right context of competition; or "no liberty without law."

             If any economist says, “There is no such thing as a free market,” we bet he certainly is  a macroeconomist. Many of them  would never go to a concert, blaming the noises made by the whole orchestra. Nay, the other way around: They, preferring  noises to music and that unanimously, miss noises which are too few in the concert. Either way, the concert is out of  their  interest even when the pianist is Danial Barenboim under the baton of Gustavo Dudamel.

 

The price is right. As we are so well aware by now, the first marginal step to build a theory is abstraction. We disregard such noises as the distance from each household to each mart; or some households are of two while others of five. Needless to say, what to take as music vs noises is our judgment call; the choice in turn differentiates a wild guess from a reliable theory. An ill-working compass, for instance, will eventually lead some of those to  “wherever” wanted. Amen!

             Let us while in Here suppose, imagine and conceive the single market (L^-2) of apple so as to cover the whole community (L^-3) in the particular week (T^-1) of observation. We focus on the shopper-wise marginal benefit on one hand and the seller-wise sicker-price on the other hand. Not to mentions sticker-prices are all different among marts all across the community. In addition, some prices, sticky notwithstanding, are more or less negotiable on the basis of the relative bargaining power, so to speak. In the first place, “2+ 1” or the like is applicable in quite many places.

             Apparently, there are so many prices bilaterally agreed upon. Stopping there, we can neither have fun nor build a hypothesis. We average out, weighted with quantities of trade, all the prices in town as “revealed in the market”; then, we call such an average “the price of the apple by the week for the participants” in the communal market. With the additional assumption of random distribution of free choices all through and across, the price is most likely to be what we come across in the elementary textbook of economics: the one at the gold cross of the demand and supply curves. 

             As long as we live in a democratic republican liberal economy, the price is not only legally right but also politically correct.

 

The baton of the invisible hand. The (average)  price is named as at the end of the day, or the week to be serious. In other word, the price is ex post. Like history, the price works as the reference point for each household and the baton of all the households. Specifically, each household goes shopping in the next current period with the historic price in mind. There is no guarantee at all that the new price in the mart will be the same as the old one.

             There will be no such thing as the “equilibrium price” as long as shoppers and sellers have free will. By definition, a "free will" walks willy-nilly, or “random” more pedantically.

 

The utilitarian justice. Every marginal unit of utility deserving its cost, the Greatest Happiness shall be obtained (J.S. Mill, Utilitarianism, 1861, Chapter V. “On the Connection between Justice and Utility”). A utility in return for another utility: “good for good, evil for evil”; no free lunch: “People face trade-off.”  

             On the condition that everyone’s free will prevails, the price is just. No economist is ever supposed to quarrel with the price, the principle of thinking at the margin, the invisible hand or the market. Unsatisfied, “near-satisfied” or “satisficed,” you would be better-off not to blame the market. If you ever do, you’re barking up the wrong tree. The windmill is not your enemy, either, M. Quixote.

             We close with a quote from J.S, Mill as in the above:

 

Sissel Kyrkjebø - Solveigs Song