Tyranny of the Market

I finished reading Joel Waldfogel's Tyranny of the Market where he explains why, contrary to what some writers (most notably Milton Friedman in Free to Choose) claim about market economies, "you can't always get what you want."  His thesis is that because of fixed costs, some markets are "lumpy," and people with unique tastes won't be able to get the goods the want unless there are a sufficient number of consumers available in the first place.  In a way, Waldfogel's book is the antithesis of Chris Anderson's The Long Tail.

It's instructive to look at the freest of free markets: the textbook "perfectly competitive" market, summarized by the demand and supply diagrams.  At the market price, there is almost always a subset of consumers who do not obtain the good.  Consider the following diagram.

Any consumer willing to pay at least $30 gets the good.  The consumers represented by line segment 3 to 5, those not willing to pay at least $30, do not get the good.  The market does not satisfy everyone, just those with maximum willingness-to-pay of $30 or more.  Other market structures with less competition result in fewer customers getting served.

Now I know that Waldfogel describes certain segments of a population with particular tastes, not a group of people that can't get the good because of insufficient willingness to pay.  My point is that not everyone is served by a market.

But that's really not the point when evaluating markets and evaluating whether they are "tyrannical."  In markets, people engage in trade with one another when it is mutually beneficial.  Markets per-se do not tend towards tyranny because of the voluntary nature of trade.  This is not the case with many government actions*, which involve imposing one group's will on another.

But in principle, Waldfogel's short run thesis is correct.  Not every person gets served, nor every group.  But over the long run, technological improvements bring products to underserved groups.  In fairness to Waldfogel he does admit this.  Indeed, Bryan Caplan notes his experience with a certain underserved market:

Now just last week, the market answered my longest-standing unrequited demand. Nineteen years ago, I got Bernard Haitink's 1988 performance of Die Walküre for my high school graduation. Eight years later, when I had the funds to complete my Haitink Ring cycle, it was impossible to obtain. Even when the internet multiplied my options beyond my youthful imagination, no one was selling Haitink's Ring.

Until... last week, when I did another seemingly quixotic search on Amazon, and found that EMI had re-released the entire tetralogy (here, here, here, and here).  To be honest, I'm so sentimental about this performance that I can't tell if it is a great recording.  But I am sure that it seems great to me, and is infused with nostalgia.

If I were like Waldfogel, I guess I would harumph: "Nineteen years?  It's about time!"  But that's not me.  I'm truly grateful that the market would dig up this obscure recording and mail it to me for under half the inflation-adjusted price I would have paid back in 1989. If that's your idea of "tyranny," what would count as Utopia?

And Doc writes:

I have moved about a thousand times. Each time I have bought new shower curtains and new shower-curtain rings. You know what? Every single time, the number of rings in a standard package has exactly matched the number of holes in the shower curtain. Amazing co-ordination, wouldn't you say?

I am an avid Missouri Tiger sports fan, having spent over 9 years living in Columbia.  In Minnesota, there are no radio networks that carry Tiger games and rare are the times that Tiger games are on the telly, at least up here in the Northlands.  But thanks to Yahoo!, DirecTV, CSTV, and other broadcast media I can follow pretty much any Tiger sports team at any time.  Thanks to my internet provider and the good folks who made Firefox available, I can keep up with the Tiger news the second it hits.  20 years ago that would not have been possible.

So Waldfogel overstates his case, and that's apparent from the title of the book.   Markets are not like people.  Markets are where buyers and sellers voluntarily come together to trade.  Markets cannot be tyrannical.  People can be and are tyrannical in market transactions, but they can be and are tyrannical in government affairs.  Waldfogel argues for government subsidies to help underserved populations.  Since subsidies must be funded by taxes, this involves substituting market outcomes with government outcomes.  Will this result in a net decrease in tyranny?

*I am in no way advocating some kind of anarchical state.  I do believe that government involvement is necessary, for example in the area of defining and enforcing private property rights.  But I tend to get a little cross-eyed when government micromanages private affairs.