Talk:Price mechanism

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A price mechanism or market-based method is any of a wide variety of ways to match up offers and requests that market players bid and ask:

a bid is an offer to pay a fixed amount that is held open for a period of time an ask is an offer to sell for a fixed amount that is held open for a period of time If the terms "pay" and "sell" are understood very generally, then, a very broad range of applications and different market systems can be enabled this way. Internet dating for instance could be based on offers to talk for a period of time, accepted by those who are compensated not in money but in additional credits to keep using the system. Or, a political party could trade support for different measures in a platform, perhaps using allocation voting to "bid" a certain amount of support for a measure that a leader has "asked" them to support: if the measure has enough support in the party, the leader will proceed - a very explicit model of so-called "political capital".

The main advantage of such methods is that conditions are laid out in advance and transactions can proceed with no further permission or authorization from any participant. When any bid and ask pair are compatible, a transaction occurs, in most cases automatically.

Though there are many concerns about liquidating any given transaction, even in a conventional market, there are ideologies which hold that the risks are outweighed by the efficient rendezvous. In greenhouse gas emissions trading this is particularly non-controversial as the whole atmosphere of Earth can reasonably be seen as one uniform body affected almost equally by emissions anywhere on Earth. There are thus almost no local effects, and only a measurable and widely agreed climate change effect, of a greenhouse gas emission, justifying a "cap and trade" approach. Somewhat more controversially the approach was applied even earlier to sulphur dioxide emissions in the United States, and was quite successful in reducing overall smog output there.

In most applications of such methods, however, the comprehensive outcome of the transaction is not so easily measured or universally agreed. Some theorists assert that, with appropriate controls, a market mechanism can replace a hierarchy, even a command hierarchy, by ordering actions for which the highest bid is received:

An infamous example is the assassination market proposed by Tim May, which were effectively bets on someone's death. This has since been generalized into the prediction market idea which the Pentagon proposed to operate as part of Total Information Awareness - however this proved controversial as it would theoretically let assassins predict and then benefit from their predictions, which they would cause to come true. This is however a problem even with the commodity markets and any other financial markets where a single person's choices or fate might be influenced, predicted, or decided by someone already in the market.