The pricing setting differences in the ordinary market and the financial market

Prices are set in the financial market and the ordinary market based on some similar concepts and some different concepts. Let's discuss the similar concepts first. Prices are set in the both markets based on the relationship of demand and supply. It is almost the Golden rule that when the supply increases, the price will decrease and when the demand increases, the price will increase. Both markets follow this rule without a doubt. Secondly, in both markets, the concepts of substitutes and compliance goods remain and prices change accordingly. Thirdly, in reality, both markets are not perfectly competitive and there is no perfect information in either market. Of course, the two markets have many different characteristics.

Firstly, the prices of goods in ordinary markets are believed to be diminishing over time; however, many assets in the financial markets usually have increasing prices, especially when they are believed to good assets. This is because the utility of an ordinary good is fully consumed once the good is assumed, and the value of the good is diminishing over time. In addition, in a perfectly competitive, prices should be equal to the costs of production which are certain. However, a financial asset is different. The utility and benefit of a financial asset are not fully consumed when they are consumed. Moreover, the price is set based on people's expected returns and expected costs. When the time is processing, some uncertainties become certain, so the expectations are changing over time, thus prices are more likely to increase over time when some risk disappear over time. Moreover, financial assets can produce returns over time and ordinary goods cannot produce any further values. Secondly, in ordinary markets, the supply side is usually the side with more market power; in financial markets, the demand side usually can have more power than the supply side. Of course in both markets, there are some exceptions. This is because, in financial markets, the demand side has the rare resources, cash, that all the supply parties are bargaining for; in other words, the demand side controls the rarity in the market. Thirdly, when goods are traded freely without limitation, in ordinary markets, large demanders can have price advantages; while in financial markets, smaller demanded can have more price advantages. This is because when bargaining for the same financial asset, the supply is usually constrained, and prices are set at different prices, small consumers can consume at the market price but large demanders demand more than the market can supply at the current level, so when they want to consume the full amount, they have to lift the market price and lose price advantages.