Not what they are cracked up to be! There are many who are totally committed to the idea that markets are the perfect invisible hand that makes economics work ... but experience suggests that while markets have a very important role in the functioning of the economy and society, they are only one part of the totality of the socio-economic infrastructure.
Markets are way better than administered prices My experience of pricing in Communist countries in the decades prior to 1990 would have convinced anyone that a system of administered prices ends up distorting the economy and making it totally unproductive. Markets do a far better job of allocating resources, and moving goods and services in response to demand.
But administered prices have been little better in the non-Communist world. President Nixon imposed several rounds of price controls in the aftermath of the 1973 oil shock ... and accomplished nothing but market distortion and disruption. At the time I was running a factory and buying large quantities of bronze under a long term purchase contract. When price controls were introduced in the USA, but not in the rest or the world, our supplier suddenly had no supplies for us. Not surprisingly the supplier chose to sell on the world market at the world market price rather than in the USA at a much lower administered price. To keep our foundry operating we had to purchase bronze in Europe at the prevailing world price ... and then fly the metal to the USA in time to keep production going. Instead of bronze prices going from 50 cents a pound to 35 cents a pound ... the administered price ... my cost moved from 50 cents to $1.35 a pound. So much for controlling inflation through administered prices!
Markets need many competitors But markets only work well when there is competition, and the competition is reasonably fair. The market does not work well as a resource allocation mechanism and as a vehicle for creating incentive for more supply when the supply chain is complex and there are market players on both sides of the same transaction. This has become very common, and the market mechanism often serves as a vehicle for extracting profit from the value chain
Monopolies, oligopolies and the concentration of power. Monopolies, oligopolies and the concentration of power have been a problem in all of history. There has been commentary on this since biblical times. Concentration of power is a reliable predictor of economic abuse. This was recognized in the 19th century and exploited to the maximum extent by those with powerful interests ... as it probably has been for all of history. The US lawmakers have tried to prevent the abuse of the concentration of economic power with Anti-Trust legislation ... and so also have other jurisdictions. It is difficult, because the rewards a great and there has been no lack of creativity.
Democracy is an attempt to stop government and politics from becoming a system for the concentration of power ... but it has not been totally successful, and ever since it has been possible to pass law, there have been powerful interests trying to influence legislation in their favor.
Market Mechanism ... Price. The market mechanism is the classic determinant of price, and, it has to be said, the market is more often better at getting a sensible price than bureaucrats in secluded government offices. But the market is not always right, and can be very wrong when there is an excessive amount of “gaming” in the market. The market works because there is some speculation ... but the market fails when the market is dominated by speculation.
Many prices are set, not by the market, nor by government fiat, but by thoughtful analysis in corporate offices. They are set with, in most cases, the goal of making the most profit from the product or service. The models to optimize profit are complex, but usually flawed. Good judgment and luck are important as well. Experience and knowledge of the product and the customer are vital.
None of these methods of determining price explicitly take into consideration the role of value. Corporate investment in profitable products and services trumps any investment in value producing products and services ... and at the limit, society fails.
Massive datasets about prices. There are massive datasets about prices. ... that is what a buyer pays for a product or services, and what prices stocks and other financial interests are trading at, what prices commodities are trading at, etc. Price is what is being paid for the item ... price is the money received when an item is sold.
For a buyer, the price is a cost ... something of a conundrum that confuses analysis!
Price and value. Price may be value ... but usually is not. The price is merely what an item is traded at ... and may or may not have anything to do with value. Many factors influence price ... and where price is determined by market forces, there are many factor that influence the behavior of prices in a market. Price is a key variable in the performance of society. It is not as important as cost, but the way price is used in society determines the way value is shared between the various economic actors.