Couple of months ago I have started a series of posts on price formation in the free market or how and why the free market does (not) work. Last time I have provided concluding remarks on this topic. But would like to share some additional materials.

Couple of months ago I have started a series of posts on price formation in the free market or how and why the free market does (not) work.

In the first part of the series we have discussed economic laws of supply and demand. We have learned that the cheaper the product is the more people will be willing to buy it. Also that the more people are willing to pay for the product, the more of the product will be produced.

In the second part we have discussed a simple example in which printing press failed to predict the demand for the book. We have discussed how non-optimal prices emerge as a result of this miscalculation.

In the third part of the series we have discussed the implications of the cobweb model, which attempts to explain how the prices and produced quantity converge to equilibrium. We have noted that this convergence is not immediate and may take some time.

In the fourth part we have looked into the price formation from game theory perspective. We discussed why competition should emerge and why it might not. We had also discussed some interesting implications of the "price war" game, which highlight crucial importance of the competition.

In the fifth part we have also analyzed the proposed alternative to the "neo-liberal" idea of the globalization and the free trade. We have concluded that it is a terrible idea, which is neither novel, nor successful.

Through out this series of posts we have discussed few simple models lying behind the idea of free markets. We have discussed the assumptions, which are made and which must hold for the free markets to produce desirable outcome. From these posts, and many others on Physics of Risk, we should have obtained a good understanding that self-organization does not always result in a "good" (desired) outcome.

Couple of months ago I have started a series of posts on price formation in the free market or how and why the free market does (not) work. Let us deviate from the topic by discussing the proposed alternative to the "neo-liberal" idea of the globalization and the free trade.

Note that in the post that follows I will not follow the usual practice of listing (referencing) the sources. Most of the sources I found while exploring this topic are extremely questionable as they try to promote ideological agenda instead of exploring ideas behind them.

Also be warned that text is rather long and the answer is rather obvious. No, we should not turn to economic nationalism. It is rather bad idea, which works only for strong nations, which are able to exploit more vulnerable nations.

Couple of months ago I have started a series of posts on price formation in the free market or how and why the free market does (not) work. This text is a slightly detour from the part four of the series. In which I would like to delve into interesting properties of the gameI have introduced in the part four.

In the part four I have asked you to imagine that the market consists of two competing companies, which produce almost identical products. Each of the companies can charge a high price or a low price. If one company wants to charge low price, then all consumers would prefer buying its product and not the competitors. I have assumed that there are 100 consumers and that companies produce products for all consumers (namely they always produce 100 units of the product), high price is 5 monies, low price is 3 monies and production costs are 0.5 monies. In this post I would like to remove some of these simplifying assumptions and discuss how the model works if different numbers are selected.

Few months ago I have started an interesting topic about the price formation. This topic is rather important in the contemporary context as it is often claimed (by the media and some lobbyists) that we should "let (the markets) go" (fr. Laissez-faire) with out any regulation or influence from the government. Supposedly free markets would discover the fairest prices and allocate the resources to the most capable. Yet for this to be true, some assumptions must hold. One of these assumptions is the presence of fierce competition and this assumption seems to not hold well as in the repeated games cooperation emerges.

Here we would like to share a 3rd-party material about this. We have already shared some material related to the prisoner's dilemma, but we have not properly discussed how this game is played. The video below, by "This Place", properly introduces this game as well as its iterated version. We invite you to watch the video and contemplate why the cooperation emerges in this setup? How this model could be useful in understanding our society?