The Forces of Competition in the Marketplace

Several recent postings highlight the phenomenal strength of market forces and consumer sovereignty.

1. The Emirates Economist links to an article showing that consumers are getting (choosing?) more nicotine in their cigarettes. His point is that the market conveys information about a product, even if the suppliers might not want a big fanfare about that information.
   
   

   Those who don't understand how markets work often worry that firms routinely cheat their customers. Certainly there are cases where that can happen, but most often firms are disciplined by a simple mechanism: consumers quickly learn the quality of the product and adjust their demand accordingly.

2. In a second posting, EmEc reiterates the concern so many economists have about the minimum wage:
   
   

   [T]he majority of Americans (and other peoples for that matter) believe the minimum wage benefits the intended beneficiaries. It benefits only the lucky ones who don't lose work.
   
   
   
   The "power" to the buyer that exists here, exists purely because of the minimum wage. The owner/manager is going to cut the hours because the incentive to hire labor has changed (not to make a political statement). And those whose hours get cut are the ones the manager likes least -- something that's possible to do with profit consequences because the minimum wage has created excess supply.

   In that posting, EmEc raises a serious issue, namely that decisions makers have a much stronger incentive to discriminate against unfavoured groups when there are price controls.
   
   
3. The third item is a nice, succinct piece by Cafe Hayek pointing out that if credit card interest rates are "too high" (whatever that means), then market forces will drive them down:
   
   

   If there are government-imposed restrictions on the ability of banks and other firms to compete to offer consumer credit, then credit-card rates would then likely be too high. But absent such restrictions -- and I know of none -- then our best guess is that rates are appropriate. If rates were too high, then the greedy quest for profit would prompt one or several firms to lower rates or offer better terms to consumers.

   Boudreaux also makes the telling point that the market is generally a better regulator than are politicians:
   
   

   Am I naive? Certainly no more naive that is Mr. Mintz and others who suppose that an investigation by Congress into credit-card rates will uncover trustworthy information and use this information as the basis for sound corrective actions.