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What Is an Open Market Economy?

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  • Written By: C. Mitchell
  • Edited By: John Allen
  • Last Modified Date: 25 October 2016
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An open market economy is a system of national trade wherein buyers and sellers are free to engage in commerce without government intervention. This sort of system is also frequently referred to as a “free market.” In an open market economy, the government takes a largely hands-off approach to common transactions. Buyers and sellers enter into agreements with each other for their own mutual benefit and are free to set prices and terms of sale as they see fit. Economists generally posit that an open market is the most conductive to positive economic development, financial health, and overall market strength.

The open market economy works by allowing individual participants to self-regulate. Keeping the marketplace a level playing field for all should put all people on equal footing, with everyone having the same opportunity to buy, trade, and sell. Participants themselves, not their governments, decide which goods are the most valuable. Supply and demand are creatures of the market under this system, not designs of tariff or taxation authorities.

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In theory, the free market encourages investment, and rewards those who make savvy trades. It also motivates citizens to innovate by encouraging them to supply new goods or services to fill burgeoning demands. Trade doors also open easily in an open market for imports and exports, allowing businesses to find and exploit opportunities through international trade as well as domestic sales. Free trade is often said to benefit the wider international community by enabling an open exchange of goods and ideas.

No economic systems work in a vacuum, however. It is rare for an open market economy to always yield positive results. One of the most common consequences of the open market is the creation of an elite class. The most successful participants are often able to control the prices and drive them upwards, for instance. This often leads some players — most notably, those with less means — to be effectively excluded, not able to buy or trade at all.

One school of thought teaches that lower classes in free markets exemplify the consequences of freedom, namely that failure to engage or bargain strategically is a choice that has ramifications. A more majority viewpoint seeks a middle balance somewhere between absolute freedom and moderate government oversight. Most free markets involve some government regulation, which serves more as a stabilizer than a controller.

Taxes and trade restrictions are pervasive in most examples of the modern open market economy. Regulations preventing unfair dealing, deceptive pricing structures, and monopolies over essential goods and services are also common. It has been argued that any hand of the government disrupts the autonomy of buyers and sellers to the extent that a market can no longer be considered “free.” This is a minority view, however. Most economists cede that light-handed government oversight promotes order, in many ways advancing individual dealings and innovations while protecting against lawlessness that could lead to market deterioration.

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SteamLouis
Post 3

I don't think that it's good for an economy to be too open. Of course, in order to compete in the global economy and grow, a country does need to maintain a free economy. But if it's too open, that means that national industries will suffer because of foreign companies.

If the economy is very open and favorable for foreign companies, they will become lead players and push national companies out. So there has to be some protection for national companies. It's not good to be completely reliant on other countries.

literally45
Post 2

@ddljohn-- I saw an open market index the other day and the US was rated 38th. The index is rated with the countries with the most open market economy at the top. So we don't have a very open economy, we have a mixed economy.

Some aspects of our economy are completely open and function on their own dynamics without government interference. Other aspects are regulated by the government.

ddljohn
Post 1

Is US an open market economy or a mixed economy?

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