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assuming a huge number of perfect circumstances which is not how reality works. Assumptions made for what you said to play out include: perfect competition, per
by throwaway2048 7y ago
assuming a huge number of perfect circumstances which is not how reality works. Assumptions made for what you said to play out include: perfect competition, perfect information, perfect rationality of actors, 0 barrier to entry, that value and cost is strongly bounded and defined on either end, and much more.
Common examples that violate each one in term: Facebook, Used cars, Veblen goods, Utilities, Healthcare.
A market that has one large player that completely dominates certain segment(s) is not likely to be a healthy one that is providing value at near cost, why would it be? The incentive is always to charge as much as possible.
- dragonwriter 7y ago> assuming a huge number of perfect circumstances which is not how reality works. I don't think there is actually an equilibrium price defined as some kind of compromise between supply and demand curves absent those circumstances, either; there's an actual price at any given time, but it's not an equilibrium (particularly, without rationality—which incorporates perfect information—you don't have any expectation of an equilibrium even if all the other factors are present, at any price.) Once you are discussing equilibrium—as the post the grandparent addressed did—you are implicitly discussing at least some of the ideal circumstances you’d like to negate.
- throwaway2048 7y agoThe market can still reach equilibrium even with non optimal conditions, just not the "efficient market" equilibrium. Additionally, irrational does not mean unpredictable, after all advertising is extremely effective.