How Greed Determines the Price of Goods

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Triana Gorman-

Theoretically, a market can exist without any monopolistic traces. In this “perfect” market, numerous buyers shop with full-knowledge at a multitude of markets selling the exact same product for relatively the same price. These markets enter and exit the competition sans barriers. This market structure is called perfect competition. Despite being a real economic structure, it is rarely fully seen. Could one reason be because “[s]elf-interest makes the world go around”? [1] The Peruvian street markets, which very likely seem to be a fitting example of perfect competition, will be examined to answer this question. In Peru there are streets lined with stalls selling identical items and charging identical prices, something that all of their customers know. All Peruvians are more than able to open and close their own street markets that sell similar goods whenever they want. However, once factoring in the human nature of greed, just how perfect is the competition in these Peruvian markets?

Every Peruvian market essentially sells their goods at the same market price. It is the lowest price possible, considering both production costs and a desire for profit. Because of the large number of markets in the same business, this price stays somewhat constant. To be fair to competitors and insure a long-term consumer market, vendors do not have much room to negotiate. By pricing an item lower than the surrounding stalls, a seller attracts more customers, as seen on the supply and demand curves, both taking in competitors’ business and cutting competitors out of the market. In addition to this, the seller “will sell out” from underpricing his items. [2] If the situation reversed and the vendor overpriced his item, he may make more per product, but as “[r]aising prices reduces demand,” will lose consumers overall. [3] Another potential side-effect is that after witnessing the higher profits made by this one stall, neighboring sellers, wanting to reap the benefits, price their items higher and cause a short-term total increase in prices for consumers. A happy medium in this situation is one where vendors sell their goods at a fair and attractive price that is not outrageously high yet still creates a profit.

Although fair and attractive market prices are the most logical, one cannot ignore that “[m]arkets are consistent with human nature” so human consumers and producers still work to better themselves, wrecking the perfect competition of Peruvian markets. [4] As “[i]ndividuals act to make themselves as well of as possible”, [5]  they will do anything to haggle a better price and when “firms try to make as much money as possible,” [6] they sometimes accept these bargained prices, removing themselves from the price unity aspect of perfect competition. With price discrimination, vendors again disrupt perfect competition and take control of the market price of their product by charging customers differently. Because of a natural greedy desire, the Peruvian markets do not model perfect competition.

An overview of the Peruvian markets shows what looks like perfect competition. After experiencing the actual business of the markets and realizing the presence of human nature, one realizes that the prices here can be changed and controlled, something not allowed in perfect competition. The presence of greed eradicates perfect competition.

[1] Charles Wheelan, Naked Economics: Undressing the Dismal Science (New York: W. W. Norton & Company, 2010), 321.

[2] Ibid.

[3] Ibid.

[4] Ibid.

[5] Ibid.

[6] Ibid.

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