Understanding the market, By Uddin Ifeanyi


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The market is an interesting concept. And not just because of the many ideas associated with humankind it is one of the more ubiquitous. Most of us will encounter it at its most basic

at the retail end of most production processes. Most often as a fixed location. Not too long ago, it had fixed days of the week when it convened in some places. In the modern Nigerian case, it will be more likely riddled with less-than-ideal public infrastructure. No lavatories. Impossibly narrow walkways that leave patrons’ use of these facilities a nightmare each time the rains fall. Not too great, either, on hygiene if your search is for perishable items. Or if your concern is with stagnant water as breeding places of choice for malaria-bearing mosquitoes.

Especially at this rudimentary level, the number and quality of interactions that take place at any moment in time in these places beggar the imagination. Still, asymmetry (how much and when) in the information available to buyers and sellers along with non-standard product delivery processes mean that the price discovery process in most of our retail markets is less than adequate. Sellers divvy up markets by how their patrons turn out

outfits, vehicles, elocution, etc. Buyers engage in an accusatorial bidding process that is part Dutch auction and part fiddle. Our markets are, in this sense, a frustrating experience. Made slightly more endurable only when patrons are rich enough to shop at supermarkets.

These facts are that much troubling because the prices that are generated through this process are essential for the effective functioning of society’s allocative mechanisms. Prices generated by markets signal to farmers what to farm, in what quantities, and where to sell them. Just as they tell manufacturers what to manufacture, where, at what price, and which distribution arrangements to use in getting their goods to the final consumer.

These latter considerations draw attention to the market’s importance as a theoretical construct. Even here, the market is still a regular gathering of people for the purchase and sale of a range of items

although increasingly buyers and sellers need not meet, nor the latter own that which they vend, and the former take immediate possession of their purchases. In its ideal form, a market should exist for a homogeneous good or service. All the information related to whatever product is on sale in the market should be available fully and at the same time to all participants. And the absence of barriers to participants’ exit from and entry into markets should result in considerable number of buyers and sellers actively participating in the market. Prices will be fixed by how much buyers are able to pay, and sellers willing to sell. Sellers whose cost of producing an additional unit exceeds the price at which that unit sells for will find it increasingly difficult to remain in the market. As will buyers whose bid prices are below the marginal cost of bringing the good or service to the market.

Whatever its preferred incarnation the market is not a kind place to marginal players. Understandably, for this reason governments are minded to intervene in support of inefficient sellers, or indigent buyers. And this is before you include the levels of price volatility that may over short terms play fast and loose with markets’ allocative efficiency. Yet, the absence of the monopoly power that allows sellers manipulate prices in rigged markets is the one requirement for the efficient allocation in society of its scarcer resources

labour and capital. And fewer barriers within and across industries to the participation of market forces ought to mean that those who lose out in one market may yet find profit elsewhere. Beyond the regulatory tools and frameworks required to hold monopolistic tendencies down, and free the price discovery process, governments may help markets along by consistently investing in society’s capacity to train, retrain, educate, and re-educate its human capital endowment.

This freedom to choose what to buy, produce, and sell is the market’s main link to the other freedoms without which democracy is but a performative process. In other words, it is hard to conceive of a democracy with rigged markets.

Surprising then, that our retail markets, a cat’s cradle of guilds and associated restrictive practices are not as free as they seem at first blush. A clear candidate for reforms that remove all lets to interstate commerce, the freeing of domestic markets from the guilds that currently run them rank along with the removal of institutions that hinder the free movement of goods within the economy as urgent tasks that must be accomplished if we are to rapidly and consistently boost domestic productivity.

Uddin Ifeanyi, journalist manqué and retired civil servant, can be reached @IfeanyiUddin.








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