Reinventing the Bazaar Chapter 1

Reinventing the Bazaar Ch. 1

Question 1: What does the author see as the defining characteristics of a market?

Question 2: McMillan writes, "Markets provoke clashing opinions. Some people revile them as the source of exploitation and poverty. Others extol them as the font of liberty and prosperity." Have you observed these kinds of opinions? What might cause some people to distrust markets? What might cause other people to distrust government control over economic decisions? Do you personally lean one way or the other?

Question 3: McMillan uses folk football as an analogy for a completely lawless market and claims that modern markets are governed by rules (as are the modern sports of soccer, rugby, and American football.) What market rules would you say are important for modern markets? Why?

Answer 1: McMillan says that the defining characteristics of a market are, "an exchange that is voluntary: each party can veto it, and (subject to the rules of the marketplace) each freely agrees to the terms." This is pretty straight forward. An exchange that is voluntary means that the seller cannot compel the consumer to the exchange and vice versa. Both the consumer and the seller may veto the exchange at any time. If the price is too high for the consumer, they may simply say that they will take their business elsewhere. If the seller has any doubt that the consumer will even pay, they reserve the right to cancel the exchange as well. Another defining characteristic is that the market must be a public space or cyberspace in which the exchange of goods may occur. A market cannot be a household, internal transactions in a firm, nor government consumption.

Answer 2: In order for a market to succeed there needs to be trust among the consumer and the seller. The consumer must know the quality of the product that they are purchasing. The seller must trust that the consumer will pay for the item. Another important aspect is trust in the exchange of information. Both the consumer and seller need to be on the same page with what information is being exchanged about the product and the money involved. A market would not flourish if there is miscommunication. $200 US is completely different than 200 pesos. There may also be distrust in the government intervening in economic decisions. Firms are more in favor of a free market because there is less regulation and they may create monopolies on goods or services. This is why government intervention may be necessary. However, we have had instances where government officials have been smuggling money into their own pockets because they control some economic decisions. I cannot say that I completely distrust the government because like McMillan says, "a market cannot reach its full potential without some regulation." However, too much government intervention leads to communism, which defeats the purpose of a market.

Answer 3: Like I said earlier, it is necessary for a third party, or a government, to step in and set some rules. A great rule to have is to eliminate the chance of a monopoly. Once a company has full control of a product they may set any price on their product and consumers will have to pay that price because they cannot go to an alternative provider. This means both vertical integration and horizontal integration. It is also important that providers may not collaborate to set a common price on a product so that they will all benefit from the exchange at the consumer's expense. Like the evolution of folk football, the evolution of the market should be driven by the consumer.