Nation of Beancounters

Market power

Posted in Uncategorized by Navin Kumar on March 8, 2012

People seem to think it automatically true that firms and owners of capital have more “power” than individuals and therefore we require a state that dulls their edge. I personally find this absurd, not because firms/owners never have an “advantage” (I put these words in quotes because they have no formal meaning that I know of) but because it really depends heavily on market conditions, information etc.

To explain why my thinking is such, let me invoke two examples of my own dealings which colours my thinking. I broke my Kindle by sitting on it and got Amazon to send me a replacement by not telling them about why it broke. Since I live in India, they couldn’t pick it up to inspect it before-hand. Similarly, before I moved into the hostel I’m currently living in, I was staying in a room near the university area. Once I got the hostel, I left the room but by then the house Delhi University hunting season was mostly over. The last I checked, my room was still empty. Conceivably, I cost my former landlord 30-40,000 rupees in lost rent. I’m now too embarrassed to pick up the remainder of the security he owes me.

In these cases, I took advantage of an company that was trying very hard to maintain a good reputation and a market for student housing that (for me) was full of options. Again, I’m not saying that one can never be disadvantaged by the allocation of property rights. What I am saying is this: the vast majority of people feel pain when owners/firms take advantage of them as consumers/employees and therefore conclude that this power must be curbed somehow. But that’s mostly because they’ve never been in the position of producers/employers and don’t know the kind of damage that customers and employees can inflict by (say) quitting abruptly and leaving their positions vacant.Think of this as a sort of observation bias: we observe/feel one type of damage a lot more than the other type and conclude that this must be the worse problem. The fact that employers/owners tend to be better off makes us skeptical of the notion that there is any such “problem”.

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