Encouraging Competition to Reduce Prices : An Externality to Auction Theory for Price Discovery

Price control for consumer goods typically would result in poor quality products at a low price or acceptable products sold at an elevated price. Auction theory posits that the market price discovery mechanism depends on perfect competition where for each good, supply meets demand and the price is negotiated, in the market, through economic actors making decisions to maximize their utility given a fixed amount of money. However, there exists circumstances where market distortions skewed the price of products through the sale of exorbitantly priced products of unknown quality. While these are typically small in volume and numbers and generally do not alter economic actors’ perceptions of an acceptable price for a product of specified quality, scenarios can occur where a sizeable fraction of a population could afford expensive high-end products; thereby, creating an intrinsic demand mechanism for such products in the economy. In these circumstances, consumers’ perception of the market would be distorted if they are unable to afford the products. The common approach to such a problem for maintaining a stable society without economic polarization would be institution of price control, where a price cap is levied for a specific product quality or specification. Hence, price control is a negative externality to auction theory. On the other hand, could subsiding the price of an average smartphone for most consumers by the government help control prices? Yes, but taxpayers are implicitly paying for the price difference through their taxes, which is economically inefficient in aiding the poor in owning a smartphone. A better way would be to use means testing coupled with targeted subsidies to help low-income individuals own a smartphone, which is increasingly essential for finding a job and subsequent economic uplift. At the population level in the consumer market, encouraging manufacturers to deliver reasonable priced solutions for daily mobile telephony needs, may be a better approach for using market competitive mechanism to discover prices for essential consumer items necessary for an individual to function effectively in a modern, technology enabled economy. Doing so may introduce a slight economic externality to the prevailing auction theory for price discovery and may be a point of incision for research by economists. Interested readers may want to expand on the above points in their research