Composition of Markets - Relation to the Third and Fourth Fundamental Observations
The objective of this chapter is to understand the components that the market uses to facilitate trade, advertise opportunities, and generate information.
Every market has four components: product and interests of producer participants, demand of consumer participants, price, and time.
Product and Producer Participant Benefits
A product must either fulfill a need, or be packaged or marketed in such a way as to convince participants that it fulfills a need. The producer is a self-interested individual whose demand is to continue operating and whose goal is to maximize profits. He wishes to facilitate the trade of his products in order to determine the profit-maximizing price.
Consumer Participant Needs
Consumer participants have their own personal purposes for using the market. These purposes are varied, and they reflect consumer demand for products in all but the most organized markets. The goal of the participants is to meet their needs as cost-effectively as possible and to determine the quantities needed to purchase. Every product has value in every consumer's heart. In determining product value, each consumer weighs the product's costs and benefits.
price
Price is the market component that most participants rely on when making trading decisions and refers to the amount of consideration given or set for the sale of a particular commodity. It is a variable, therefore, it fluctuates. Prices facilitate trade by leveling markets, making fairness for both producers and consumers in a fraction of the time.
Markets, in facilitating trade, use prices to facilitate activity. Prices do this through advertising opportunities, moving up or down to make the market attractive for participants to enter. Markets constantly take advantage of price fluctuations between areas that encourage buying (consumption) and areas that encourage sales (production).
Prices, through constant promotion of activity through advertising opportunities in the market to facilitate trade, are achieved by testing excess levels. However, when prices are too high or too low, there is little trade activity in the market. So when prices are too low or too high, it doesn't facilitate trade and eventually has to change.
In order to prevent excessive price fluctuations in one direction, the market has "hidden brakes", that is, the self-interest of the participants. If the price becomes unfairly higher or lower than the value, one side of the producer-consumer equation will not trade or the volume of transactions will decrease. For example, it advertises opportunities to producers when prices rise, but perhaps in areas where consumers won't buy, or will buy reluctantly, and in smaller quantities, forcing producers to lower prices over time.
A business custom that exists in most Western cultures, the "post-holiday sale," may illustrate the overpriced promotional capabilities and hidden brakes inherent in every market. During this time, most department stores heavily discount items that are not sold at regular prices during the festive season, and this is the period of greatest inventory demand for retailers due to the high number of buyers. Store management realized there was a shortage of buyers after the holidays, and items that weren't selling at their normal pre-trade prices wouldn't sell quickly. The retailer's main goal throughout the year is to quickly clear slow-moving inventory, which leads to increased interest, storage and insurance costs, while also increasing liquidity. Therefore, the item is repriced as: . Furthermore, items are only sold if they are repriced at a sufficient discount to attract so-called bargain buyers. 3 Therefore, every post-holiday sale is a "purpose (low excess) price" used by the marketplace to move off old inventory that was not sold during the holiday season. Retailers are willing to boost remaining inventory through ultra-low prices, because only ultra-low price cuts can achieve the goal.
As for the hidden brakes in this market: Shoppers are seeing these new low prices as bargains because those same items cost much more in the months leading up to the holidays. For example, a shirt that sold for $50 in the first nine months sold for $25 after the holidays had participants respond. They realized they were buying for less than what they had settled on in previous months. (So that shoppers equate price versus time with value is not an accepted, explicit principle, but a perceived, almost unconscious insight.) The hidden brake that prevents a shirt from selling to $10 is In the self-interest of the retailer, the retailer believes that a 50% discount will be the price excess he needs to achieve his goal within the allotted time.
Thus, while a low price surplus attracts consumers, a high price surplus attracts producers. Another example of prices over-promoting activity - this time high surplus, thus boosting activity among producers - can be seen in land values and prices when new demand for hotel rooms arises. Management of seasonal motels located in resort areas expects strong demand and only charges top prices during seasonal periods. Shown in graph form (price per room versus time), these seasonal periods represent market highs and short time relationships, while the rest of the year, the "low season" represents lower average price.
Say a large theme park opens a few miles away, creating a huge demand for nearby hotel space. A separate hotel next to the park can now charge twice as much as the motel above during the off season and still be fully booked. The high or excessive prices charged by this lone hotel inform competitors. This information will inevitably boost activity in the value of land around holiday parks, as suppliers of holiday-related services are expected to reap the lucrative profits that the only hotels are making. So high prices attract more (producer) sellers who pay higher prices to buy land and build hotels. The so-called implicit brake, the self-interest of hotel guests, is this: as hotel space increases, prices will fall assuming fixed demand, and the excess prices charged by individual hotels will quickly decrease to maximize profits.
Therefore, one of the most important insights that the information provided by the market will provide producers and consumers is that activity is closed at a certain price. This is a signal that prices are not conducive to trade or to facilitate activity, and this level should only be available for a short period of time, so it is a level of excess that is expected to change. For example, when a new, higher price produces a materially lower level of activity, it signals to producers that lower prices (or corrections such as advertising) are now required if sales of the product or service are to pick up. sexual marketing strategy). Likewise, if the producer, for any reason, lowers the price to such an extent that he can make a fair profit, he will soon shut down the supply of the product at an unreasonably low price and raise the price.
time
Time is a market component that few players rely on when making trading decisions, and it accounts for the degree of change between market demand and price. This is a known constant, a metric that participants inadvertently use when determining value through transactional data. Time affects trade by regulating the duration of purchases (consumption) and sales (production).
In facilitating trade, markets use price to facilitate opportunity and time to regulate opportunity. In other words, the market uses time to regulate the availability of a given opportunity to ensure that when the price-facilitating opportunity reaches excess, prices are kept in check. The market is constantly using time to regulate itself throughout the structure. In other words, time at a given price creates volume, which the market equates to value. All else being equal, the more time a price or price area has, the more volume and value it will have.
Examples of how time regulates price activity are illustrated in the two preceding examples of how price promotes activity. In post-holiday sales, although department store management is willing to sell at half the pre-holiday price, management is unwilling to offer a """ chance for less than this value for a long time, but only until the current inventory is sold. If the store will buy If the opportunity for merchandise is extended to what is considered a regular shopping season, then lower post-holiday sale prices will soon be seen as new areas of value. This is something no retailer wants to see. Retail stores and other producers/sales The merchant takes advantage of the lower excess price to promote." e activity, as long as it satisfies the purpose behind the excess price. Interestingly, the greater the markdown, or the extent to which the offered price is below value, the shorter the time for the opportunity to arise.
Again, the example of a resort hotel illustrates time regulation activities. In this example, higher prices boosted producer activity, which attracted new hotels. The high prices initially charged by independent hotels and later by new hotel market entrants appear in hindsight to be an excess that only occurred until demand for hotel space was met and exceeded. This activity (rising land values and hotel construction) continues until it becomes too high (hotels saturate demand) and the high-priced activity is shut down. So while hotels near holiday parks can temporarily charge above-value prices, the excesses of the market drive this opportunity and, as a result, hotels cannot sustain high prices and low vacancies for long. Thus, time regulates and controls high price activity over long periods of time.
Both consumers and producers are interested in creating the greatest amount of activity at the most favorable price. So in the process of reaching an equilibrium, the market will create extremes in the market that don't happen over time because they are attractive to one side but not to the other. In order to balance, the market needs to go too high or too low to find territory that is fair to both parties for a period of time. It is these excesses on both sides that give the market its natural organization and inform the participants.
When prices change so slightly that activity is not shut down, there is no excess in the market and the market is trending or exhibiting a slow and constant pattern. Therefore, from a relative perspective, the market will either overwork or change slightly.
in conclusion
The components that make up a market interact as follows: the market controls and regulates itself through its allocation of prices and time, generating natural organizational types, generating equilibria and providing information when there is excess production to test market acceptance.
This obvious conclusion is a major breakthrough for anyone who understands market logic. This conclusion goes against the conventional view that price is the only mechanism that markets use to balance or quantify supply and demand. (Introductory economic theory asserts that econometric models are built in hypothetical situations, and many investors and traders have experienced frustration believing this.) However, when participants focus only on prices and prices, they simply cannot Understand the market. Therefore, price-to-price analysis is inherently narrow and practically meaningless.