Uncoordinated Rants: Free Market: Why no company would ever support a free market

What constitutes a free market?
• There are no costs to entry in a particular market
• There are infinite number of business/people willing to participate in a market
• No firm, by itself, can influence prices
• Consumers make rational choices based a variety of factors (price signals, et cetera)
• Low to non-existent transaction costs
• Profit motive

So what can we derive out of this, besides that this mythical beast doesn’t exist? In a truly free market the only winner is the consumer. Think about it. As soon as a business generates a profit, dozens of business are ready to enter the market (wanting a piece of the pie for themselves), which lowers prices through competition until no one makes any money.

So what does this mean? Paradoxically, the profit motive of each individual company creates a situation in a free market where profits are completely eliminated. Profits are only created short term or in inefficient markets.

This means that every single rational firm out there is anti-competitive when it comes to their own industry, yet a staunch supporter of free market ideals when it comes to their suppliers. (If you think of a labor union as a “company” that sells “labor”, this probably explains why every industry hates labor unions).

Firms use various strategies to dismantle the free market system. They erect barriers to market entry, attempt to create monopolies or oligopolies, fight to control resources, and create false market differentiation (branding*).

The people who lose in all of this are consumers.

This non-traditional view of the relationship between consumers and firms should be used to examine the motives of corporations when they attempt to make institutional changes or support legislation. It is doubtful that firms would support legislation that would increase competition in their respective industry. In a weird kind of way, it might take a lot of regulation and various market punishments to ensure that there is a free market.

A good example of this was the recent federal smoking legislation that was passed. The act banned flavored cigarettes that were direct competitors to traditional cigarettes. Makers of traditional cigarettes jumped on this and supported legislation that removed competition from their industry. Regardless of positive or negative social implications (or motivations) of the legislators, prices of cigarettes will probably rise due to lack of competition.

Moral of the story: whenever a company supports a "free market" they either are lying, have some other nefarious motive, or are some combination of idealistic and stupid.

Editors Note: Yes. I understand that everyone ELSE already knows this, but I am shocked that no one else applies this to any current analysis (beyond the academic sphere) of political, social, or economic events. How can we expect to get the best prices when there are only 2 major credit card suppliers or a few massive insurance conglomerates?

*Ironically enough false differentiation due to branding (whether or not you have a Nike swoosh or a Lacrosse Alligator on your polo) can create tangible, real world differences.