Market systemA market system is any systematic process of helping bidders and sellers interact and make deals. It is distinguished specifically from a voting system where candidates seek the support of voters on a less regular basis. However, the interactions between market and voting systems are an important aspect of political economy, and some argue they are hard to differentiate, e.g. systems like cumulative voting and runoff voting involve a degree of market-like bargaining and tradeoff, rather than simple statements of choice.
Heavy reliance on many interacting market systems and forms is a feature of capitalism, and advocates of socialism often criticize market features. This article does not discuss the political impact of any particular system nor applications of a particular mechanism to any particular problem in real life. For more on specific types of real-life markets, see commodity markets, insurance markets, bond markets, energy markets, flea markets, debt markets, stock markets, net auction, real estate market, each of which is explained in its own article with features of its application, referring to market systems as such if needed:
Market systems are more abstract than their application to any one use, and typically a 'system' describes a protocol of offering or requesting things for sale. Well-known market systems that are used in many applications include:
- auctions - the most common, including:
- dutch auctions
- reverse auctions
- silent auctions
- rationing (including the command economy of some states)
- regulated market (including most real-life examples as above)
- black market (the term 'black' indicating lack of regulation)
As this debate suggests, key debates over market systems relate to their accessibility, safety, fairness, and ability to guarantee clearance and closure of all transactions in a reasonable period of time.
Also, the degree of trust in a political or economic authority (such as a bank or central bank) is often critical in determining the success of a market. A market system depends inherently on a stable money system to ensure that units of account and standards of deferred payment are uniform across all players - and to ensure that the balance of contracts due within that market system are accepted as a store of value, i.e. as "collateral of the holder of the contract, which justifies "credit" from a lender of cash.
The market itself provides a medium of exchange for the contracts and coupons and cash to seek prices relative to each other, and for those to be publicized. This publication of current prices is a key feature of market systems, and is often relevant far beyond the current groups of buyers and sellers, affecting others' supply and demand decisions, e.g. whether to produce more of a commodity whose price is now falling.
Banks, themselves, are often described in terms of markets, as "transducers of trust" between lenders (who deposit money) and borrowers (who take it out again). Trust in the bank to manage this process makes more economic activity possible. However, critics say, this trust is also quite easy to abuse, and has many times proven difficult to limit or control (see business cycle), resulting in 'runs on banks' and other such 'crises of trust' in 'the system'.
However, market systems are usually flexible enough to be refined and detailed rules adjusted so as to regain the trust of participants relatively quickly - most market systems tend to degrade gracefully, with a few exceptions, e.g. hyperinflation, South Sea bubble, tulip boom, dotcom boom, depression, that are very damaging, but nonetheless relatively infrequent.