Free Market – How it is Supposed to Work

To begin, we must recognize that a truly free market does not and perhaps cannot exist.  A truly ‘free’ market would be one where there are no regulations and no taxes.  A market where every exchange is mutually agreeable to both the buyer and the seller.  A true ‘win-win’ situation.

‘Profits’, either ordinary or excessive, would be a none issue.  You wouldn’t care if someone profited from your purchase because you wouldn’t have made the purchase unless completely satisfied with the ‘value’ of the product or service.

And what would happen to the seller making those obscene profits?  That seller would immediately be faced with competitors willing to accept a lower profit, but one which they were satisfied to achieve.

In fact ‘obscene’ profits are ‘key’ to innovation and cost reduction simply because they encourage competitors entering the field.

In a truly free market the only way for a ‘seller’ to succeed is by meeting the consumer’s need or want.  A product that fails to satisfy those needs or wants will simply fail and the individuals who have put their resources into producing that product will lose those resources.

No one will risk their resources (and it is a risk since no one knows what the consumer really needs or wants) unless they see a potential for profit.

In a truly free market the consumer is ‘king’.  It is the consumer who determines which products are successful and success will be determined entirely on the basis of how well the product satisfies a need or want.

At the same time it is ‘potential’ sellers who compete for that approval.  This leads to lower costs, more features and entirely ‘new’ (innovative) products.

We should celebrate rather than ridicule individuals and businesses who are satisfying our needs.

Steve Jobs created the iPhone and it met with wild acceptance.  (It’s hard to imagine a world without the ‘smart’ phone that allows us so much freedom and enhances or lives.)  As a result of this acceptance, Apple’s profits were ‘obscene’, but few people complained.  It was perceived as a ‘value’ and the cost was justified.

What happened?  Google, Samsung and others saw the ‘smart’ phone as an ‘opportunity’ and they became ‘competitors’ of Apple, offering similar features at a lower cost.   Apple saw a loss of sales as these competitors entered the market.

Next step?  Apple, Google, Samsung and others started ‘enhancing’ their products.  Adding more and more features.  Some of these features were seen as ‘value’ and others failed to attract a following.  Consumers gained by having phones that met their particular needs while the costs have remained relatively constant.

This is a picture of the free market in action.  Jobs took the original risk and reaped the greatest profit (which is why he took the risk).  This led to competition and innovation that further increased the ‘value’ to the consumer while costs have been reduced.

WordPress Plugin Share Bookmark Email

Leave a Reply

Your email address will not be published. Required fields are marked *