Harvard Business IdeaCast 129: Free Market Madness?
Featured Guest: Peter Ubel, author of "Free Market Madness."
A free market is a market that is free of g...
overnment intervention and regulation, besides the minimal function of maintaining the legal system and protecting property rights[1], and is free of private force and fraud. In a free market property rights are voluntarily exchanged at a price arranged solely by the mutual consent of sellers and buyers. By definition, buyers and sellers do not coerce each other, in the sense that they obtain each other's property without the use of physical force, threat of physical force, or fraud, nor is the coerced by a third party (such as by government via transfer payments).[2] In addition, in a free market, force is not used to prevent competition among buyers or among sellers (called free competition). Therefore, force is not a determinant of price, but rather price is the effect of buying and selling decisions en masse as described by the law of supply and demand. Free markets contrast sharply with controlled markets or regulated markets, in which governments directly or indirectly regulate prices or supplies, which distorts market signals according to free market theory.[3] In the marketplace the price of a good or service helps communicate consumer demand to producers and thus directs the allocation of resources toward consumer, as well as investor, satisfaction. In a free market, price is a result of a plethora of voluntary transactions, rather than political decree as in a controlled market. Through free competition between vendors for the provision of products and services, prices tend to decrease, and quality tends to increase. A free market is not to be confused with a perfect market where individuals have perfect information and there is perfect competition.
