How do you participate in the market without initial resources? Even if you have some minimal initial resource, how do you act efficiently in the market when you do not have the resources to buy the information that lets you act efficiently?
If there is no regulation, rather just the most efficient trading, how do you compete with the gigantic entities that hoard inelastic goods to manipulate the price. It takes a lot of capital to efficiently counter their maneuvers. The problem is that 1) you are not in the market to exploit arbitrage opportunities, you are there to buy something you need 2) you do not have the capital to exploit that type of arbitrage opportunities and remain solvent.
You know that silly saying "The market can stay irrational longer than you can stay solvent"? What is a rational market for a large entity with capital is very different from what is rational for a small entity with little resources.
Every able-bodied person has a resource: their labor. They exchange their labor with other humans who have other resources they want.
The entire premise of capitalism is that you get stuff by exchanging something of value you have for something of value that someone else has that you want. If you don't have any stuff to trade, you trade your time. Once you have some stuff, you either trade that stuff for other resources, or continue to trade your time.
You did not answer the most basic question in my comment. If all you have is this minimal resource, how do you "buy" the rather expensive information necessary for acting efficiently on the market?
Yes, of course you can invest your labor, as you should, but if all you have is this small resource on a completely unregulated efficient market, big fishes can manipulate the price of your labor. If you have a ton of money you can counter their manipulation and make money, but if all you have is your labor you simply have to accept the manipulated price.
I'm not sure what you mean by "manipulated price". In a perfectly efficient market, labor will be priced at its marginal value. That is, you will receive the incremental value of your labor. In a perfectly efficient market, there is no such thing as 'manipulation', everything is priced according to its supply/demand curve.
I'm also not sure what you mean by "buy the expensive information necessary for acting efficiently on the market". What information is that? In the current world, all the information you could want is essentially free. What is not free is a certificate from a university. The information itself costs as much as an internet connection, though. And that can be had quite readily even on the lowest of salaries.
In a perfectly unregulated market a large entity can hoard a resource or provide a resource at a temporal loss for themselves so that they bankrupt their small competitors. This is an arbitrage opportunity that can be used against the large entity only if you have a ton of money - if you are small you are out of luck.
If you are small you do not have access to the expensive analysts that tell you how this perfectly efficient market will move. There is a fixed initial cost to join the "efficient" part of the market, that nobody but the big players will have. They will know when on average new workers join in so they can undercut their salaries / they will know when houses will be in demand so they can hike up prices / etc. If the small guy has that information they can efficiently adjust the time to participate, but that information will not be available without the expensive initial investment into analysis. The economy of scale that exists for the big players ensures that the market will be efficient only for them.
> In a perfectly unregulated market a large entity can hoard a resource or provide a resource at a temporal loss for themselves so that they bankrupt their small competitors. This is an arbitrage opportunity that can be used against the large entity only if you have a ton of money - if you are small you are out of luck.
While that is, in principle, possible. Can you think of any times it's actually happened absent regulation? The only times that come to my mind are when a company exploited regulation to achieve this.
> If you are small you do not have access to the expensive analysts that tell you how this perfectly efficient market will move. There is a fixed initial cost to join the "efficient" part of the market, that nobody but the big players will have. They will know when on average new workers join in so they can undercut their salaries / they will know when houses will be in demand so they can hike up prices / etc. If the small guy has that information they can efficiently adjust the time to participate, but that information will not be available without the expensive initial investment into analysis. The economy of scale that exists for the big players ensures that the market will be efficient only for them.
This is a fun theory, but there's really no evidence of any of this dynamic occurring anywhere in our current economy, and in general is a misunderstanding of how supply and demand actually work. The problem with this theory is that, even if you assume companies were able to do this, the amount they'll be able to squeeze out of people by doing so is not actually that large. Predictive analytics definitely can give you an edge, but they do not give you an infinite edge.
For certain types of businesses, yes, that makes it hard to compete. But if you come up with a viable way to compete with some scale player, there's plenty of pools of capital out in the economy that'd be happy to fund your idea. That's what venture capital is all about: matching resources to ideas.
If there is no regulation, rather just the most efficient trading, how do you compete with the gigantic entities that hoard inelastic goods to manipulate the price. It takes a lot of capital to efficiently counter their maneuvers. The problem is that 1) you are not in the market to exploit arbitrage opportunities, you are there to buy something you need 2) you do not have the capital to exploit that type of arbitrage opportunities and remain solvent.
You know that silly saying "The market can stay irrational longer than you can stay solvent"? What is a rational market for a large entity with capital is very different from what is rational for a small entity with little resources.