[mrow84]

> The free market has absolutely no position on collusion, except that force may not enter into economic transactions. If two parties choose to collude to set prices, the free market has no opinion on the matter as such; if they set prices incorrectly in the process of judging the market, they will lose. That is basic free market ideology.

I was under the impression that, to be allocatively efficient, market participants have to be 'price takers' (along with a bunch of other assumptions) - anything other than this creates an inefficient market.

I also think it is incorrect to assume (even in theory) that this kind of market failure will always resolve itself by the price makers, i.e. those engaging in collusion, being priced out of the market. The alternative, which seems to me to be more likely (otherwise why would people collude?), is that the price makers capture an inefficiently large proportion of the market's productive output.

In short, market theory absolutely does have a position on collusion - it leads to market failure.

[nickik]

> I was under the impression that, to be allocatively efficient, market participants have to be 'price takers' (along with a bunch of other assumptions) - anything other than this creates an inefficient market.

You should update your economic belives. Look at the 2002 Nobel Price by V. Smith for this one.

> In short, market theory absolutely does have a position on collusion - it leads to market failure.

The existence of market failure is no position. Just for the fact that there is market failure does not have any implication on what to do about it.

No (almsot no) free market economys belvies that there is no market failure (however you want to define it). That is simply something that is often assert because it makes for good propaganda (makes it possible to laught at the idiot free market people without really listening to them).

The question is not if the market is perfect, it is clearly not. The question is (a) can we do something about it, do we know enougth (b) given the power to do something about it, will the goverment actually do it, or will it use that power to do the oppiste.

Now I would assert (hince my free market views) that both (a) and (b) have to be answer with 'most likly no'. We often do things because we think we can and it turns out that it also has tons of other effects that we did not wish for (law of unintended consequenses). Next even assuming that understand everything about some action, given the power is it not more likly that something else will be done. A quick glance at history clearly shows this, how often is a given regulation used to help buissnesses instead of people workers.

Why do you think you coke is made out of mais sirup instead of cain sugar.

[mrow84]

> Look at the 2002 Nobel Price by V. Smith for this one.

Can you please elaborate? I don't know enough of the details to understand the link you're making.

> The existence of market failure is no position. Just for the fact that there is market failure does not have any implication on what to do about it.

The first sentence is incorrect, and is not implied by the second sentence, which is correct. The 'position' is that, in order to have an efficient market, one should not do things that cause market failure. It is a negative position rather than a positive one (DON'T do X rather than DO X), but it is still a position. It informs you about what sort of things you shouldn't do if you want a market to operate efficiently.

> That is simply something that is often assert because it makes for good propaganda

Saying that collusion can lead to market failure, and thus must be proscribed if one wishes to have an efficient market, is not propaganda. It is the kind of thing that must be said, seemingly repeatedly, to illustrate the point that markets are not a magical solution to the allocation problem.

The argument you subsequently make, that "we don't know better", is both completely standard and completely wrong. We may well not know better than an efficient market - I'm not sure but it seems very reasonable. However, moving from that to suggest that imposing controls such as anti-collusion regulations (along with a whole host of other measures to avoid market failure), is unnecessary, is unsubstantiated.

If you examine your own argument, it is based by your own admission on an assertion. The foundation for why one might think that what you are saying is true (market theory) explicitly lays out the assumptions required for it to work, and you ignore these on a purely ideological basis.

[nickik]

I feel like we are misunderstanding each other.

With position I am talking about politcal position, witch is what it is all about.

> The 'position' is that, in order to have an efficient market, one should not do things that cause market failure.

"one should not" who is "one"? I dont understand what you mean. The goverment should defnetly not do things that cause market failure, and in my opinion the should do things against it either.

> Saying that collusion can lead to market failure, and thus must be proscribed if one wishes to have an efficient market, is not propaganda.

My point was to say that, its propaganda to say that free market people dont belive in market failure, nothing else.

> It is the kind of thing that must be said, seemingly repeatedly, to illustrate the point that markets are not a magical solution to the allocation problem.

Again, nobody is arguing for "perfect markets". This is what seemingly repeatedly has to be said.

> However, moving from that to suggest that imposing controls such as anti-collusion regulations (along with a whole host of other measures to avoid market failure), is unnecessary, is unsubstantiated

No it is not. Also you only addressed the first part of my argument. Its hard to argue the general case here, there is tons of litrature showing how for example anti-trust regulation was used to keep prices high. There are tons of cases where goverment was used to enforce cartels as well.

So if the goverment task of managing cartels would not exists then there might be less cartels overall.

> The foundation for why one might think that what you are saying is true (market theory) explicitly lays out the assumptions required for it to work, and you ignore these on a purely ideological basis.

You might be surprised but there no just the walrasian standard model (or Arrow–Debreu). Also just because the make these assumition and the need to be true in there model does not mean that it is the same for the real world. You are assuming that the standard model used in econ 101 is reality.

Well it is not, and everybody who studied economics a bit knows this. You need to bring in transaction costs, theory of the firm, information economics, you need to bring in instiutional economics, there needs to be a explaition market ajustment and so on. Also you need to model politcal economy, are you really so naive to assume that the correction of market failure is also just like in these models. A completly costless third party that only ever does anything when the model goes out of balance, interduce politcal economy into the mix, try modeling 'goverment failure' as well.

Again, I feel I have to say this again, I do not make the argument that a market always is or always reaches generall equillibrum very fast(as in Arrow-Debreu). The simple idea that you seam to have is that any diffrence between Arrow-Debreu assumtions and the real world must be corrected is not woreable in practice, and I belive no economist would still try this.

[mrow84]

> With position I am talking about politcal position, witch is what it is all about.

I was originally responding to adventured, who said "The free market has absolutely no position on collusion, except that force may not enter into economic transactions." I dispute both this statement as I understand it, with the argument I have already laid out, and also your current claim that the "free market political view" has no position on collusion.

On that, I don't think you can just claim to speak for everyone who considers themselves a proponent of free markets, and furthermore a lot of people who do so are very clear about the need for controls on those markets, mostly (it seems to me) with the aim of bringing them closer to the theoretical ideal.

> "one should not" who is "one"?

One here refers to anyone who is trying to engage in free market transactions, as opposed to someone who wants to distort a free market for their own ends. I apologise for my lack of clarity.

> My point was to say that, its propaganda to say that free market people dont belive in market failure, nothing else.

I understand that, however you are responding to a straw man - I didn't say that free market proponents don't believe in market failure, I said that they, meaning the most ardent supporters, believe that market failures are best resolved by the market - that regulators can't do better. You may wish to dispute this.

> ... Also just because the make these assumition and the need to be true in there model does not mean that it is the same for the real world. ... > ... You need to bring in transaction costs, theory of the firm, information economics, you need to bring in instiutional economics, there needs to be a explaition market ajustment and so on. Also you need to model politcal economy ...

I agree wholeheartedly with what you are saying here - it is indeed very difficult to model the economy, and the assumptions on which the models of principle lie most assuredly do not hold in the real world. I also share your understanding that most economists would not claim otherwise - they have much more pragmatic views of the economy.

Overall, I'm not sure I understand what your point is. Mine was originally that basic market theory gives a reason why collusion is bad, and has now been extended to include the notion that simply waving your hands and saying "I don't think regulation works" isn't an argument, for example:

> So if the goverment task of managing cartels would not exists then there might be less cartels overall.

Is a statement that is possibly true, and possibly false, it is not, however, a basis for decision making.