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Do price guides run the market?
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<p>[QUOTE="The Eidolon, post: 3928537, member: 102103"]I've been trying to think through what effect a price guide has on the market:</p><p><br /></p><p>1) If accurate, a price guide should reduce the transaction costs of buying and selling coins, by reducing the amount of time and knowledge required to know one is buying a coin at the fair "market" price.</p><p><br /></p><p>2) A guide should flatten the supply and demand curves by making buyers less willing to to pay much more than the stated price and sellers less willing to take much less. Individual coins are unique and can deviate from the expected price, but it should reduce selling price variation in the market as a whole.</p><p><br /></p><p>3) A less than accurate price guide does not control the market in the long term. In the short term, it may be able to move prices a little bit until the market accumulates enough sales data to adjust to the disparity. The more thinly-traded the coin, the larger and longer lasting this deviation could be. It may be possible for a coin to have multiple potential equilibrium price points due to quirks in the supply and demand curves or imperfect buyer and seller information, and an inaccurate price signal could nudge the price out of one equilibrium point and into another. I think this is not particularly likely in the real world, though.</p><p><br /></p><p>In general, the market leads, price guides follow. Not the other way around.[/QUOTE]</p><p><br /></p>
[QUOTE="The Eidolon, post: 3928537, member: 102103"]I've been trying to think through what effect a price guide has on the market: 1) If accurate, a price guide should reduce the transaction costs of buying and selling coins, by reducing the amount of time and knowledge required to know one is buying a coin at the fair "market" price. 2) A guide should flatten the supply and demand curves by making buyers less willing to to pay much more than the stated price and sellers less willing to take much less. Individual coins are unique and can deviate from the expected price, but it should reduce selling price variation in the market as a whole. 3) A less than accurate price guide does not control the market in the long term. In the short term, it may be able to move prices a little bit until the market accumulates enough sales data to adjust to the disparity. The more thinly-traded the coin, the larger and longer lasting this deviation could be. It may be possible for a coin to have multiple potential equilibrium price points due to quirks in the supply and demand curves or imperfect buyer and seller information, and an inaccurate price signal could nudge the price out of one equilibrium point and into another. I think this is not particularly likely in the real world, though. In general, the market leads, price guides follow. Not the other way around.[/QUOTE]
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