Free Market? No, they're just greedy.

Let’s get this straight: You are not supposed to get filthy rich in a free market.

It’s pretty simple, really. In a free market, all the sellers want to sell for as high a price as possible. Buyers want to buy at as low of a price as possible. Eventually, this is supposed to reach an equilibrium.

This also means that sellers aren’t making huge profits. The basic free market model says that if I’m selling at a ten percent markup, someone else will be willing to sell at a nine percent markup. To compete, I’ll have to lower my prices. Then someone else will sell at an eight percent markup. Repeat. [1]

Open, transparent competition is key.

In this model, there’s no big reason to invest in making new products – that’s where patents and (to a lesser degree) copyright come in. I develop a new widget, and patent law gives me a couple of years to sell that widget at a higher price to make back what I invested in developing it. After that, the free market will force me to lower prices to compete.

But that’s not what we see in our country today. We see an expectation of continuous and high profit margins. We see individuals and companies trying to game the system to keep their profits. They create exclusive partnership deals. They have (effectively) geographic monopolies. [2] They consolidate, and get larger. These larger companies then no longer have to compete with smaller organizations – they simply buy them or use their size to leverage them out of business. (Hello, box stores!)

Our society has become addicted to the profits that come with innovation – but no longer care about the innovation itself. Our financial sector believes that 1% growth is bad performance, rather than the norm.

They might say the words “free market”, but what they want is nothing of the sort.

[1] The one big exception to this is when products or services are not “perfect substitutes”. For example, Red Robin (a fancy burger chain) is not in direct competition with McDonald’s.
[2] For example, my employer stopped offering a choice of health care plans in 2005. Geographic boundaries become even more crucial when transportation becomes costly or difficult.

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