One of the disadvantages the “market” has is that few people understand what it is and how it works.
What: A market is nothing more than the interactions that take place between people.
How: Contained in the those interactions are signals and feedback that help us respond better to each other.
Yesterday a colleague and I were responsible for providing birthday treats for our work group. We went to the grocery store across the street from the office. I decided I was going to buy Hostess cupcakes. My colleague wanted to buy Ding-Dongs. We happened to come across the Hostess vendor as he was restocking his shelf.
I picked up the box that contained nine cupcakes for $2.99. My colleague asked the vendor for the big box of Ding-Dongs. The vendor replied that he only stocks the snack size of Ding-Dongs on this rack, because the bigger size just doesn’t sell well enough here.
There it is. The market in action. The people who frequented that grocery store, for whatever reason, didn’t buy very many big boxes of Ding-Dongs. Not buying was a signal from the customers telling the vendor that they didn’t prefer the big box of Ding-Dongs. He had tried it out. The response was poor. His employer encourages him to maximize sales, which means he would be stocking the mix of products and sizes that customers are most willing to buy. The vendor uses the feedback he receives from what sells and what doesn’t to try different things out and to make his customers and his employers as happy as possible. That’s a win-win situation and that’s a great example of how the market works.
Obviously, it’s not perfect. My colleague didn’t get his big box of Ding-Dongs (though he could have bought 6 snack sizes), but he chose an acceptable substitute – Twinkies.