The internet can provide a great opportunity to learn about free markets. According to this New York Times article, over Thanksgiving weekend last year competition among online retailers led to the price of a video game falling from $50 to $15. What can happen for video games, can also happen for other goods, which is why we should examine a free market to see if it could cut prices for necessities, alleviating the struggle of the middle and working classes against inflation and price hikes.
The internet allows retailers to respond more quickly to competitor’s prices, while years ago retailers would have to send employees into competitor’s stores, and the price change would be reflected on the shelves days later. What this most recent episode has shown, is that with the internet, it is getting harder and harder for retailers to charge exorbitant rates, because there is always someone to undercut them.
While Amazon has long tinkered with prices, its competitors are now fighting back. In the last year, Walmart invested heavily in pricing tools, a Walmart eCommerce spokesman, Dan Toporek, said. Dynamite Data said there had been a marked increase in how much Walmart played with prices, and smaller retailers, including GameStop, Best Buy and Toys “R” Us, were now also adjusting some prices at least daily.
So why is there so much price competition among expendable luxury items, but so little with necessities like food and fuel? Probably because the government cannot control people through controlling video games, but they can with necessities. In our current “mixed economy” it is impossible to see where government stops, and where the private sector begins, which is why it is hard to tease apart products which reflect free market prices, and products which reflect government tinkered prices. What sounds like a good idea, providing a safety net for farmers, turns into government subsidy of certain foods, and to certain farms. The farms which do not receive the subsidies are at a disadvantage: they cannot compete with artificially low prices. This leads small farms to go out of business, and allows the government connected farms receiving subsidies to grow ever larger. Now there are a few big farms which the government keeps under its control through handouts, and voila, the government has centralized the food supply, and centralized control of the most basic necessity. And the consumer pays more for food, because there is less competition to undercut competitors prices.
Can we at least be happy that the on shelf price of food is cheaper? No, we have no idea how expensive each item is, because we have already payed for it through tax dollars. Sugar growers, corn growers, milk producers, soybean farmers, beef ranchers and many more receive government subsidies and corporate welfare. The control is thus taken away from the consumer to choose which businesses receive our dollars and sink or swim. Instead the government chooses, not the best run company, not the best products, nor the most generous company, but the company with the most ties to government who contribute the most to campaigns and who know how to play the game. And without painstaking amounts of research, each individual cannot even tell which companies have been chosen by the government, and which have survived on their own. In this article, I further explain how farm subsidies lead to cheap, unhealthy, tax sponsored food.
The basic point I am trying to get at is that if the government would get out of the way, and stop intervening in the market, and stop “fixing” problems with our economy, we would all be better off. Just at the free market price of the video game plummeted from $50 to $15, so would free market prices of necessities–if necessities were still under the regulation of the free market. They are not, which is why practically every gas station has the same price of gas, and milk, and bread.
The government subsidizes oil production, which means on top of the high rate we pay at the pump, we have already poured billions of dollars into the production of that fuel. Apart from driving up the amount of fuel used, this also undercuts any attempt to effectively transition to other sources of power. Why pay $.15/kW hour of solar power, when you could pay $.05/kW hour of oil power? If the the price of oil reflected free market pricing, we would be a lot further along on the road to alternative fuel, because the free market would present tremendous opportunities to undercut the profits of oil and solar companies, or dramatically reduce the cost of production of those sources of power. Right now global oil companies have no incentive to become more efficient, cleaner, or set lower prices, because they are already making huge profits with the help of government subsidies.
When the free market loses, we all lose. The fact that we are so far gone from a free market system makes it difficult to see where the government has stuck its’ greasy hands. But since price competition for unsubsidized things like video games is so much better than for necessities like food, this should suggest to many that the free market is a better system for keeping prices down than government subsidies. In a free market we really do not have to worry about necessities being provided, because there will always be someone willing to provide necessities for a profit, and there will always be someone else willing to innovate just enough to get the edge on his competitors. This pricing battle led a video game to drop from $50 to $15 dollars. If we allow the free market to drastically reduce our food and fuel costs through competition, America will awaken to a new age of prosperity.