Loading presentation...

Present Remotely

Send the link below via email or IM

Copy

Present to your audience

Start remote presentation

  • Invited audience members will follow you as you navigate and present
  • People invited to a presentation do not need a Prezi account
  • This link expires 10 minutes after you close the presentation
  • A maximum of 30 users can follow your presentation
  • Learn more about this feature in our knowledge base article

Do you really want to delete this prezi?

Neither you, nor the coeditors you shared it with will be able to recover it again.

DeleteCancel

Make your likes visible on Facebook?

Connect your Facebook account to Prezi and let your likes appear on your timeline.
You can change this under Settings & Account at any time.

No, thanks

Market Complexity

Individual actors, from their limited perspective, stitch together a market of considerable complexity.
by

Jim Berger

on 6 November 2013

Comments (0)

Please log in to add your comment.

Report abuse

Transcript of Market Complexity

Our story begins here.
The yellow arrows show the path you took getting from
Bike Buyer Jim
to
Fundamental Factors
.

(The white arrow shows the small backtrack to visit the labor factors.)

Now, advance to see the other economic actors that you did not meet on your tour, yet

who play an important role in this small (and complex) market.

Jim
wants to understand the bike market better. So, he has arranged a tour of this (Mock) Market. To learn more about the retailer's perspective Jim has arranged to take us on a visit to
Bike Dreams, Retailer
.
Let's visit one of his suppliers,
Bike Assembler 1
, to find out what happens further up the supply chain.
Although
Bike Assembler 1
does not deal with his own competitors, and therefore does not see them from this perspective, he knows they exist because of his visits to his three retail store customers. He knows that, although the retailers write the checks for the bikes he sells, buyers like
Jim
either make or break his business. In that case he tries to satisfy a consumer whom he seldom sees or talks to infrequently.
Bike Component Maker 1
 has an even more distant relationship with the ultimate consumer -
Jim
and bike buyers like
Jim
. He must rely on the information he gets through the market. His success depends on the success of
Bike Assembler 1
. (Of course, component makers would not rely on one customer, but this simulates a simple market.) He has to satisfy his customer who in turn has to satisfy his customer and finally...right,
Jim
( and others) again.
Now this higher order supplier exists in a world in which the final consumer seems like only a distant concept. Fortunately, he understands the chain that we have journeyed through. He understands that the sales of bikes to
Jim
-- again -- depend on the quality of his product.
Aluminum Supplier 1
buys all of its aluminum from the single Aluminum Foundry.

It supplies aluminum to a number of customers:
Bike Frame Maker 1
Bike Part Forger 1
Bike Part Forger 3
Buggy Wheel Factory 1
Extruder 1
Spoke Manufacturer 1
Stitching Machine Factory 2

Aluminum Supplier 1
competes with Aluminum Supplier 2
The
Aluminum Foundry
has chosen to distribute its product through two aluminum suppliers. They figured that those suppliers would do a better job of the marketing.

While at the foundry they took
Jim
on a tour of the Mining Land where they dig up the raw materials. Go with
Jim
on a quick visit.
Mining Land
makes up part of the
Fundamental Factor - Land
.
It provides two uses:
Mining for Aluminum Foundry, and
Utility for Other Land Uses
Land
makes up one of two Fundamental Economic Factors of production.

Land, in economic terms, consists of land and anything derived therefrom. This little market only has two types of land:
Grazing Land
and
Mining Land
.

Land gets its value only from the utility that it provides to consumers through the structure of production.
The
Fundamental Economic Factors
consist of only two:
Labor, and
Land

All economic production originates with these factors.
They only get their value (for the owner), however, from the
utility
that they (and the products produced from them) provide to consumers, either directly or through the structure of production.
Labor
makes up one of two Fundamental Economic Factors. All Laborers in this market belong to this factor. At the basest level they all compete with each other.

Labor gets its value only from the utility that it provides to consumers through the structure of production.
Bike Buyer Jim
, an avid biker, shops at three bike retailers: Bike Dreams, Bike Store, and The BikeRider. While visiting those stores, he has, at times, seen three other shoppers (bike buyers): Fred, Leroy, and Randall. This diagram represents

Jim's
perspective of the market as a bike buyer.
Bike Dreams, Retailer
has:
Four prospective buyers.
Three suppliers of assembled bikes.
Two competitors.
You can see

Bike Dreams, Retailer's
 perspective depicted in this diagram.
As a buyer,
Jim
can see that the retailer has a lot to deal with in the process of making bikes available for buyers like him. The retailer seems to answer to a lot of masters.
Here's
Bike Assembler 1's
view of the market:
Bike Assembler 1
has:
Three retailers to whom they sell.
Three suppliers of different parts.

Bike Assembler 1
also has a relationship with
Buggy Manufacturer 2
, who helps with high volume assembly times.
Jim
continues his tour of this market by traveling to see
Bike Component Maker 1
.
The Bike Market from
Bike Component Maker 1's
perspective
Bike Component Maker 1
supplies a full set of components:
He supplies one customer,
Bike Assembler 1
He has 3 Suppliers
He has one worker
Bike Craftsman, Johnny
.

Bike Component Maker 1
must compete with Other Labor Demand for
Johnny's
services.

He also competes with two other component makers, and one of his suppliers (
Seat Padding Maker
) also supplies his two competitors plus
Buggy Padding Supplier 1
.
Next we go to visit
Bike Part Forger 1
.
A Small, yet Complex, Market
This model has three objectives:
1. Contrast the perspectives of individual actors to the system as a whole
2. Demonstrate the flow of subjective value through a market system, from consumer through all levels of production.
3. Show the structure of production through space and time.

Please follow the path of this guided tour by clicking the right arrow at the bottom of the viewer. Also, read the comments as you go along. Observe the connections that each actor has with other actors in the system.

An overview of the system will be given at the end of the tour.
Bike Part Forger 1
has a limited perspecive
Bike Part Forger 1
has:
One customer,
Bike Component Maker 1
.
A supplier of aluminum (Aluminum Supplier 1).
Bike Part Forger 1
's single supplier (
Aluminum Supplier 1
) also supplies:
Bike Frame Maker 1,
Bike Part Forger 3,
Buggy Wheel Factory 1
Extruder 1
Spoke Manufacturer 1
Stitching Machine Factory 2
So, what happens at his sole supplier:
Aluminum Supplier 1
?
A Higher Level Producer:
Aluminum Supplier 1
After moving further and further up the supply chain,
Jim
feels a little altitude sickness coming on. Fortunately, he has made the trip quickly enough (along with you), that he has not lost sight of the connection with the consumer (like himself).

Aluminum Supplier 1
has a little bit different situation. Because he provides a less specialized product, he has a larger number of customers for his product. At our last stop we saw only one of his 7 customers.

Jim
also sees something that provides a clue to a broader market.
Aluminum Supplier 1
supplies a factory for buggy wheels, a different market than bikes.
...but we have another level to visit:
Aluminum Foundry
.
The
Aluminum Foundry
smelts the ore it receives from
Mining Land
into aluminum ingots to supply
Aluminum Supplier 1
and
Aluminum Supplier 2
.

Mining Land
also has other land uses available to it. If those uses become more valuable to the mine owner, he will close the mine and pursue those other activities.
Near the Top of the Production Hierarchy:
Aluminum Foundry
A Fundamental Production Factor:
Mining Land
While visiting the
Mining Land
,
Jim's
guide pointed out a sign that said "Fundamental Factor - Land." He said, "That reminds us that things don't get more basic than what we do. Land, any land, only has value because of the consumers who use the products this land produces through multiple levels of production.

"That Grazing Land you see in the distance also only has value because of the products it produces. If consumers stop buying the products supplied by either of our lands, the owners will put the land to other use. Otherwise it has no economic value.

"We appreciate consumers like you, who buy bicycles and other products. It allows us to make a living off the otherwise valueless land."
The guide said, "Let me take you on a virtual tour of the fundamental factors of production to which this
Mining Land
belongs:
Fundamental Factor - Land
."
Fundamental Factor - Land
Let's take a look at the concept of
Fundamental Factors
.
We've seen the
Land
factors in this model. Let's look at the
Labor
factors.
The Fundamental Factors of Production
The Fundamental Factor of Labor
You may recognize some of these people from our tour.
Our guided tour ends here. But, what would this small, but complex, market look like, if you could see it all at once?
The Mock Market
A Small, yet Complex, Market
Concluding Remarks
You saw three things as you toured this market:

First, you saw the different perspectives of the individual actors in this economic system compared to the overall view of the system you saw at the end. Individual actors had a limited perspective. The overview, however, showed the complexity of this small market. Imagine the complexity of our national economy.

Second, because we started with the consumer and worked our way back to the mine, you should have gotten a sense that all value derives from the preferences of the consumers.

Third, the basic tour took us from first-order (consumer) goods through increasingly higher-order goods. At the same time we traveled back in time. Mining occurred before the aluminum foundry; the foundry before the other manufacturers; and finally the buyer selected the finished product in the present.
Bike Buyer, Jim
We all live in the middle of economic systems, yet, at any particular time, we cannot see the full complexity of the system. A store in which we shop may have thousands of customers and hundreds of suppliers, but the shoppers generally do not show up at the same time and, although we see the products on the shelves, we probably know little about the suppliers.

This Prezi intends to:
give you a small idea of the incredible complexity of market systems, and
demonstrate how the whole market system exists to serve the desires of the consumer.
Introduction
If you want to experience the PersonalBrain* version of this tour, visit:
http://webbrain.com/brainpage/brain/C5705D11-505A-4F15-752E-5E71FCB05757
*I created this presentation on PersonalBrain.
Full transcript