Reinventing the Bazaar

Chapter Four of reinventing the Bazaar: A Natural History of Markets by John McMillan.

a) Choose a passage from the reading that you found particularly interesting. Why was it interesting?

One of the passages that I found to be interesting is the example on page 42-43 talking about overpricing. The example explains if you were to buy brass urn from different merchants at the price of 10 which one will you buy. You will receive a bargain if you compare the prices but this can only happen if you are given information. Although Buyers have a lack of information, the prices still is pretty high due to that sellers do not collude with each other to talk about the prices.

I found this part of the article to be interesting because it put an emphasis on the significance of information and how transferring information from one to another it can be helpful to the market.

b) What does the author mean by transactions cost? Give examples.

Transaction costs meant the cost of having others people involved in the market due to the lack of information. For example, in the article it talks about
“Intermediaries like wholesalers and trading company having to found their niche by serving to lower search costs.” In the Taiwan example on page 46 talks about how they operate as a match maker for shoe manufacturers and US and Europe. Although we have in between companies and people sometimes, “intermediaries are valuable.”

c) Simple economic models often assume perfect information (everyone knows everything, everywhere.) What effects arise from imperfect information? Who gains and who loses when information is unevenly distributed?

The effects that arise from imperfect information are that it leads to bad markets affecting both the merchant and the sellers. A lack of information can also causes price differences and a lack of communication between trades. I would say that both seller and buyer loses when information is unevenly distributed because buyers need information from seller to compare and sellers need information from other sellers in order to know how to set the prices so they can get an advantage with the buyers. In the article it states that “A market work works badly if information does not flow through it. IN labor markets especially, search costs shapes the markets’ performance. When a great many people are unable to find work, unemployment results.”