Person 1: When it comes to understanding markets, it is important to remember that, just as there are two teams in football that work against each other, there are two teams in markets. There are the sellers and the buyers. And what usually happens is that the sellers are working against the buyers.
Person 2: I agree with you. I would only add that when the sellers gain, the buyers lose; and when the buyers gain, the sellers lose.
Hear what and how the economist thinks:
I don’t think the football analogy works in the case of sellers and buyers. It’s not really the case that the sellers are on one team and the buyers are on the other, and they each have opposing goals. To understand this, consider what we’ve been looking at in this chapter.
In a perfectly competitive market if price rises, profits rise, and new sellers enter the market. Now, the existing sellers will certainly be unhappy about the entry of new sellers into the market. This is because the new sellers will increase supply, and lower price. Here is a case, then, in which the interests of existing sellers are opposed to the interests of new sellers entering the market. In short, some sellers are against other sellers.
But do we have some sellers against buyers too? We do. The existing sellers are against the buyers in that the buyers would prefer that the new sellers enter the market and drive price down. But it is the lower price that benefits buyers. So here we have existing sellers against buyers.
While the best interest of some sellers (existing sellers) is at odds with buyers, it is also the case that some sellers (new sellers) have their interests aligned with buyers. The new sellers want to enter the market in order to earn some of the profit that exists in it. It just so happens that entering the market also benefits buyers because the new sellers entering the market increases the supply of the good being produced and sold, thus lowering its price to buyers. In this instance, we have the interests of new sellers aligned with the interests of buyers.
Is a market like a football game with two opposing teams each pulling in the opposite direction and at odds with each other? Not really.
Here we have shown that we can have sellers against sellers (existing sellers against new sellers entering the market), some sellers against buyers (existing sellers do not want the new sellers to enter the market and lower prices for buyers), and some sellers aligned with buyers (new sellers entering the market benefits these sellers and the buyers). In short, it is not always us (sellers) against them (buyers) in a market.
Questions:
1. Are the best interests of buyers always aligned with other buyers? Explain your answer.
2. Are the best interests of workers always aligned with that of other workers?
Explain your answer.