Regrets we have a few

Paul McDougal contributes to a news story of a criminal act following the purchases of several items on eBay on Information Week (Business information powered by technology) (read the story at: http://www.informationweek.com/blog/main/archives/2005/11/ebay_hears_and.html)

He opens with:

“Is eBay Adam Smith's perfect market, where prices are set by the honest interaction of buyers and sellers and everyone goes home happy--or is it simply the perfect vehicle for price gouging--and much, much worse? The short supply of Microsoft's Xbox 360 means the game system is now fetching up to $1,000 on eBay. Fair enough, if a gamester really can't wait a few more weeks to play the 360 version of Call of Duty 2 or NBA Live 06 then it's their money, right? Sure, but eBay's willingness to turn a blind eye to scalping, copyright infringement and the sale of questionable goods has a darker side that proved very convenient for a creep.”

What a confusion of ideas. ‘Perfect markets’, what are they? Perfect absence of markets, are they any better? Markets are composed of the actions of dispersed human beings. There is no pre-qualification process to go through to engage in a market transaction, and I am sure Paul McDougal cannot think of one, nor anybody else, in a multi-million populated country. Even in a small village of ten families such a regime would be tyrannical and open to abuse, as well as, over the generations, open to some jerk getting round the ‘rules’ by deceit.

However, the other points in the paragraph are typical of sneers at markets. Ebay, the ‘perfect vehicle for price gouging’? I am often at a loss to understand what is meant by the notion of ‘price gouging’ and find its regular appearance in newspapers and politicians speeches strange.

A remedy for ‘price gouging’, by which its users seem to mean ‘higher prices’ than they normally expect to pay, is not to purchase. I am not in the market for ‘Xbox 360’, so $1,000 is not going to be instrumental in my decision to buy. If you are searching in such a market, and ‘cannot wait’, that, Sir, is your problem, not mine or anybody else’s. What does Paul suggest the community does about it: make the law one in which buyers determine prices?

My local football team (real football where the players kick the ball, sometimes each other, but they do not carry or catch it and run with it) charges £80 for a comfortable seat and refreshments in a comfortable lounge in the ‘corporate’ section of the ground, instead of £20 in the ordinary seats elsewhere. It’s my choice to pay four times more to watch the same game. And that is what markets are about: choice.

If buyers do not exercise the choice of not buying they accept the price chosen for the transaction by the seller. How we can meaningfully and practically intervene in the buyer’s choice is not clear. You could appeal to the seller’s sense of ‘fair pricing’, though I have never met a seller yet, who pocketing a high price who would not be even happier with a higher price. Nor, have I met a buyer yet who paying a low price who would not be happier with an even lower price.

Of course, on occasion, happily rare for most of us, addicts excluded, the transaction does not involve much choice at all. You need the object held by the seller to a degree that means you just have to complete the transaction. If the seller knows or suspects this as your situation, a high price is inevitable. Predictably, where many potential buyers are in the market at that moment, some, maybe many, will drop out; those left in will pay up. If they cannot pay, they may resort to violence, if within arms length of the seller. That then becomes a legal issue, not an economic one.

Adam Smith did not write about ‘perfect’ markets and nor did he assume, or assert, that everyone ‘goes home happy’. Paul McDougal’s mocking sarcasm mocks his own scanty knowledge of how markets work, the role of choice and, also, for those who leave any market empty handed, the role of disappointment. To which we can add the role of “buyers’ regret” – which kicks in after my local football team loses, the Xbox 360 comes down in price a short time later, and the high priced ‘gas’ in the tank is useless because the flood waters block the road out of town.

That’s life Paul, and nothing in it is perfect.