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Why a free market for news could be undesirable.

An interesting quote by Presidential Spokesperson Harry L. Roque Jr. has made the rounds of the Internet recently. According to him, if there were no fake news, people would not really get to know what true news is. Roque suggests that there should just be a 'free marketplace of ideas'-that is to say, a free or unregulated market for news, where society simply allows fake news to compete with true news.

A quick review of basic economics should be helpful in clarifying the implications of this suggestion. By definition, a market is an institution through which buyers and sellers interact and exchange goods and services. A market does not necessarily refer to a tangible area where buyers and sellers could be seen transacting. In fact, it can represent an intangible domain where goods and services are traded, much like the online platforms through which news is quickly delivered nowadays.

For as long as there are large enough numbers of contending players on both sides (producers and consumers), and there is free competition among them, Adam Smith postulated that the natural forces of supply and demand will comprise an 'invisible hand' that automatically yields the right allocation of resources and the goods and services they produce.

Nevertheless, economists recognize that the market has its own share of flaws. There is such a thing as market failure, a situation where unregulated market transactions result in waste. As economic theory goes, there are four sources of market failure: imperfect competition, public goods, externalities and asymmetric information. The last source, asymmetric information, is of particular relevance to this discussion, as it directly applies to what Roque has plainly suggested.

Asymmetric information refers to a situation where one of the parties to a transaction (either the seller or the buyer) has information relevant to the transaction that the other party does not have. Adverse selection is a situation where asymmetric information results in high-quality goods or high-quality consumers being squeezed out of transactions because they are unable to demonstrate their true quality.

The classic example of a market for used cars highlights the market failure associated with adverse selection. In this example, there are uninformed consumers who cannot tell low-quality cars (lemons) from high-quality cars (peaches). The car owners are the ones who actually know whether they have lemons or peaches. Because people behave opportunistically, owners of lemons will leap at the chance of unloading their cars at any price they could get, while owners of peaches, who expect to sell their cars at higher prices, will have difficulty selling their goods.

At the same time, buyers who are interested in peaches will find it hard to buy them because they cannot tell a lemon from a peach, and so they are not willing to offer a price enticing enough to make a transaction. So, while there are buyers who value peachy cars more than they are valued by their current sellers, no transaction will occur. The market, which is normally good at moving goods from consumers who place lower values on goods to consumers with higher values, does not work properly. The adverse selection problem could even lead to a market collapse.

The same prediction could apply to the free market for news, where fake news and genuine news are allowed to mix. To suggest that people can easily spot fake news from genuine news is a terribly flawed assumption. If no one ensures the authenticity of news, then, as theory would predict, genuine news will be crowded out, and society will end up having only fake news. The end result could likely be a market collapse, too.

As another example, suppose that in the market for milk, real milk and fake milk are allowed to be sold together. Suppose that fake milk is lethal because it has been tainted with melamine, which is a toxic substance. In the absence of authorities who check for the safety of the milk, fake milk circulates within the economy as easily as real milk does, and uninformed consumers who buy the fake milk realize their mistake only when it is too late. Would it not sound utterly silly to proclaim that without poisoned milk, people would not fully appreciate what real milk is, so there should just be a free market for milk?

Perhaps, what society really wants is a properly working market, not merely a free or unregulated one. In a properly working market for news, news providers are given the freedom to compete in the production of genuine news, and it is the primary responsibility of the government to police the fake news. After all, when there is market failure, there could also be a chance for the state and market to cooperate. Hopefully, such cooperation will lead to the betterment of society.
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Publication:Business Mirror (Makati City, Philippines)
Date:Feb 1, 2018
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