Control of immigration

Clay Shirky clay@shirky.com
Sun, 28 Oct 2001 07:37:49 -0500 (EST)


> A merchant who can sell his wares to any of a hundred people can
> keep his prices higher than a merchant who can sell his wares to any
> of ten.

This is not only not right, it isn't even wrong. 

You can't examine the market effects of demand on a merchant without
also examining supply. A sole source supplier is indifferent to the
number of buyers, because they hold a monopoly, while in competitive
markets, access to larger pools of buyers enables any one of the
players to get a short-term advantage by cutting their margins or
their costs or both in return for increased volume. In a market like
this, other players will be forced to follow suit, thus *lowering*
prices.

So this

> The larger the market you have access to, the better off you are ---
> the more people have to compete to get your business.  You have more
> power with a larger market.

is exactly backwards. Unless you are a monopoly, the larger the market
you have access to the more you have to compete to get the business of
your customers, not vice-versa, because if you do not, someone else
will move their prices closer to cost than yours are, and you will
lose business.

The largest markets of all get their own name, commodity markets. In a
commodity market, the number of buyers and sellers is so large (milk
is the canonical example) that the market sets the cost -- no movement
of the price is possible, either up or down, by buyers or sellers,
without collusion or other external force. 

So market size is determined by the number of both buyers and sellers,
and the larger the market, the lower the median price, because
competition causes the producers to either reduce margin and make it
up on volume, or exit the market in the face of such price
competition.

-clay