I was going to do an entirely different post about rents and risk, but my brain not functioning today and there is a mosquito buzzing around me trying to push me over the edge. Shortly I will be dancing around my room batting at invisible annoyances like a tin foil hat lady.

So instead you get some really basic supply/demand market stuff.

We all know pretty much what supply and demand means. People need or want stuff, the market supplies stuff that people want or need. The idea behind a free market is that if you leave it alone, competition for profit will make the market regulate itself. If you are, say a shoe maker who only makes left shoes, you will shortly be run out of business by someone who makes both left and right shoes. Or if you make shoes that cost more than buyers are willing to pay. Or if you make ugly shoes that no one wants. This is the invisible hand at work, competition making markets self regulating.

And that’s fine, for some items or in a very small setting like a small town market square. It fails in large markets. Lemme give you an example.

Say you live in a small market town. Everyone knows everyone and once a week you go to the market to buy your needed goods. You want to buy some steaks from Bob the Butcher. Yay! Steak! But before you walk into Bob’s, Bob’s neighbor calls you over and says “dude, you don’t want steak today, the meat is from one of Bob’s downer cows. I saw it fall over dead in the field this morning and then Bob butchered it.”

Information is key in deciding what goods and services we want to buy. In a small market you may be able to get that info before someone dies of downer cow ecoli. In a large market, you have no idea where the steak in the plastic wrap came from. You have to trust that your grocery store didn’t go for the cheap option downer cows because the risk of hurting their customers was too great.

But….

Your grocery store has to compete with Even Larger Grocery Store, and Even Larger Grocery Store has contracts to buy steak dirt cheap from every rancher for a thousand miles. They sell downer cow meat, but because they have eleventy billion stores the ecoli risk is spread out over a large geographic area and hard to trace back to one single source. So Even Larger Grocery Store spreads the risk around and gets away with it.