The classical market function is a self-stabilizing mechanism approaching an optimal allocation of resources as previewed by Pareto. However, the overwhelming technological progress by market economy, due to extreme economies of scale at the level of globalized technology, has turned the classical assumptions upside-down. In the globalized economy, production costs are continuously declining, and due branding effects demand slightly increase with quantities sold. This results in enormous monopolist revenues, far beyond what is justified by business incentives. An economic-statistical outlook on the most important global super economies and their stated policies on protection of the Ecosystem is presented. It leads to a pension investment guide. Finally, a SWOT-analysis of liberalist market growth ends the chapter.
Top2.1 The Classical Market
Adam Smith launched 1776 the concept of the `Invisible Market hand` (IMH) to explain how the market delivers growth. However, it took 100 years and a series of economists including Ricardo and Marshall to develop the model of the market that automatically balances demand and supply. As demand increases the price rises and supply raises, too. Inversely, supply declines when the price declines as the less effective producers no longer get a profit. So, an equilibrium (E) is established. In the short-term, adaptation is affected by fluctuations in stocks and prices. In the long-term both price and stocks become stabilized. This simple, non-bureaucratic stabilization mechanism worked for local agricultural products in early industrialism in the UK.
Figure 1. Note: The Invisible Market Hand (IMH) offers a non-bureaucratic alternative to centralized public regulation. If the Demand of a specific good exceeds Supply, producers expand production in the next period. If Supply exceeds Demand, the firm lowers the price to find E. Figure 1 applies to the classical capital market, too. Extraordinary profit is only temporary as markets with extraordinary profit attract entrepreneurs which increase all aspects of competition, also that of normalizing extraordinary profit.
A recognized shortcoming of the classical market is termed monopolistic competition. It emerges when only one company produces a given good e.g. telecommunication facilities. A monopolist supplier can improve profit, increasing price beyond E as illustrated in Figure 2. The reasoning of the monopolist is that he/her must consider both the price elasticity and the marginal production costs to find the optimal size of the prize increase and the derived reduction of turnover from Q0 to Q`.
For instance, monopolistic profit occurs when more construction companies in advance agree on their offers in a public invitation to submit tenders, so that one company bids on one project while another bids on the next. The more complex the production becomes the more options for organized supply behaviors appear. This type of business manipulation is illegal since the Sherman Act 1890 outlawed “every contract or conspiracy in restraint of trade” including “monopolization” and treated violations as crimes. So far supplier exploitation of monopolistic markets has been considered as exceptions to regulate by legislation rather than the main business case.
If trade was determined bilaterally instead of by anonymous market processes, enterprises could demand a maximum price from each customer, reflecting the marginal utility for this consumer. Other consumers with a lower marginal utility would have to pay a little less and so forth. Figure 2 shows how the benefit by the IMH, the shaded area, mainly flows to the consumer. Due competition between the enterprises, they are forced to supply goods to PE corresponding to the consumer with the lowest marginal utility. This means that the accumulated difference between the maximum and the market price represents a consumer surplus by IMH compared to the situation of bilateral trading.
Figure 3. Consumer benefit from competitive market