Open market

economic-dictionary

An open market is one in which there are no legal entry barriers or obstacles to the functioning of the free market.

The open market is characterized by the absence of tariffs, subsidies, licenses, and other regulations or activities that interfere with the natural functioning of the free market. Its main characteristic is that anyone can participate in it, since there are no entry barriers of a regulatory nature. Even so, there may be certain entry barriers, as long as they are derived from competition.

Prices in an open market will be set by the law of supply and demand. Government interference, therefore, will be very limited or non-existent. An example could be the United States stock market. Since practically anyone can access it, and the prices offered to all participants are the same and are determined by supply and demand.

The characteristic that distinguishes the open market from the free market is the free entry of competitors or the absence of regulatory barriers to entry.

Advantages and disadvantages of the open market

The open market has the advantages of a free market. That is, it allocates resources in the most efficient way possible if there are no market failures. Furthermore, the free entry of competitors implies that companies cannot abuse their monopoly position, since in the event of obtaining extraordinary profits, new competitors would enter which, through competition, would reduce prices and stabilize said profits.

On the other hand, its main disadvantage is that it can generate great inequalities in the distribution of income. The lack of entry barriers also complicates the survival of companies, so that their employees will have less job stability. Likewise, an open international market can transfer employment from one country to another, producing the so-called social dumping.

Open economy

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