Efficient and Ruthless

That describes the behaviour of markets. When markets are in equilibrium, the number of units offered for sale is equal to the number of units wanted by buyers. There are no shortages and no surpluses. On those occassions when shortages or surpluses occur, market prices adjust rapidly to a new equilibrium. Incredible efficiency when markets work, and are allowed to work.

The above scenario doesn't always work when there are too few buyers or too few sellers. In the latter case, the firm(s) involved may be slow to adapt to changing consumer tastes, or to other changes in the market place. When they do not react, they face the incredibly ruthless punishment of a market scorned.

One example of this is the superior position assumed by Research in Motion with its Blackberry phone. It was the best thing on the market - just ask them. The market, however, seemed to prefer the iPhone. Blackberry didn't react. Apple pushed the technology further and brought out the iPad. RIM has now decided that maybe they should bring out a tablet as well. Have a look what the market did to the share prices of Research in Motion (RIM) and Apple (AAPL).

Another example of the ruthlessness of markets occured today when Blockbuster Inc. filed for Chapter 11 bankruptcy in the US. The details are in an article from Reuters. (Click here for article). In this case, Blockbuster did not respond to the competition from the likes of RedBox and Netflix. They tried instituting "No Late Fees", but repealed that plan and then offered no other changes to their business plan. The bricks and mortar model of video rental is finished, the market said so and the market doesn't take 'no' for an answer.