The free market is a very much disputed concept today. Technically speaking, in a free market, the supply and demand are free from any intervention by a government, monopoly or other type of authority. It is a result of recognizing a need, followed by the need being met. But sometimes, it is a matter of creating a need, followed by that need being met.
A free market is a totally competitive market where businesses always have to do something to differentiate themselves from the others, to show that their products are much more better than the competition and deserve to be bought. This is where branding, marketing and all these other artifices come in handy. The consumer needs to feel special, to feel like he’s buying something different, something unique, something revolutionary. So, basically, businesses will, in fact, do almost anything they can to get out of pure head-to-head competition in the market and find a proper niche where they can achieve the full monopoly and profit highly from this. Once you’ve created a small market which seems to be in full blossom, other competitors might begin to show up. Then the “swallowing” begins: make sure you swallow all the small guys, so they don’t swallow you later on.
In a free market, the law of supply and demand regulates production and labour. Consequently, it regulates prices: how much are the consumers willing to pay and what is the highest salary a company is willing to pay to its employees. But the governments always come in at some point, setting some parameters, like regulating the minimum wage.
Free market, production and entrepreneurship are some very close relatives that thrive on each other, but also have to keep a certain balance in order for their relationship to benefit all three of them. The picture is a lot more complex. In the following, we’ll see how they’re related:
- Entrepreneurship is the essential dynamic of the market: Entrepreneurship has inevitable impact on economic growth, however this can be positive or negative. Usually, entrepreneurs are thought of as important assets that can wear a national economy on their shoulders like a mythical Atlas and thus bring prosperity to the country. Their influence, can change the way people work, live and see the world even. Usually, entrepreneurship is the leading power in innovations which can improve the general standard of living. In short, they can create jobs and the conditions for a prosperous society.
- Entrepreneurship is the vital link between producers and consumers in a free market: Entrepreneurs contribute at coordinating consumer demand with economic possibilities. Entrepreneurs form the pricing system, which indicates consumer demand. If this is done efficiently, economic growth occurs. Entrepreneurs are the only ones who can successfully decide the allocation of resources in the market.
- Entrepreneurship is a factor of production and extension of the market: The factors of production include land, labour, capital and entrepreneurship. These production factors are also known as management, machines, materials, labour, and knowledge. Exactly, that’s where entrepreneurship comes in. Adam Smith was convinced that, as markets grew, entrepreneurship would lead to innovation, which would in turn lead to an increasing division of labour and increased production. Ultimately, the potential for growth is virtually unlimited, to his view. David Ricardo, on the other hand, argued that the potential for economic growth was limited by the economic resources at hand, and especially by land.
- Entrepreneurship can create new markets: Entrepreneurship and innovation go hand in hand nowadays and just as you think of, a new market with new, revolutionary products, that you never knew existed or that you’ll need them, pops out and develops swiftly. But the competition is cruel, especially in the technology sector where the most rapid growth of innovation takes place. Here, the big ”sharks”, usually smell the potential of a new product and buy the small company who cannot stay firm on its feet and so, swallow the new market that was about to appear. But this is not always the case. For a small company, creating a new market category is crucial for its survival and growth. Producing what others don’t believe in and creating needs that others never knew existed, is the important factor of success in the free market today.
- Free market is the perfect environment for entrepreneurship: A free market economy is a great advantage for an entrepreneur since this type of market is controlled by business and consumer needs. The entrepreneur has to recognize which niche he can take advantage of and go for it. The free market pushes forward the entrepreneurial spirit and is the perfect habitat for an entrepreneur, since the financial success is determined by the competitive forces of supply and demand.
- Entrepreneurship increases competition: The result can be lower prices and greater product variety. The raw competitiveness of the free market leaves no space for the weak ones and “naturally” selects the best from the rest.