Public actors as market shapers

Some people think that markets are efficient and governments should let enterprises act freely in the market. In reality, public actors often intervene in markets and it is practically impossible to find a market that would not be guided by governments to some level. Partly, this is due to negative (e.g., pollution or addiction) or positive (e.g., education and welfare) impact of market activities that require brake or boost from public actors on a daily basis. Partly, the intervention is justified during the time of a shock, such as COVID-19 that encouraged governments to guide market action worldwide. Despite the importance of public actors shaping markets, there has not studies to develop our understanding of how public actors can shape markets, if they wish to do so.  

We studied how public actors shaped three interesting markets, namely (1) the betting market in Finland, in which public actors retained the domestic monopoly: (2) the open district heating market in Sweden, in which public actors changed the competitive landscape; and (3) the peer-to-peer lending market in New Zealand, in which public actors actively set up new structures and symbolic systems to facilitate new patterns of activity. We identified twenty granular mechanisms of institutional work that public actors employed to shape markets. These mechanisms are all potentially employable in creating, maintaining, or disrupting markets. Moreover, the idea of market shaping public actors is not limited to these three unique contexts. https://www.emerald.com/insight/content/doi/10.1108/JSTP-08-2019-0176/full/html

A forthcoming special issue on renewable energy in international business initiates discussion on the theme, and consequently the role of governments in supporting (and sometimes hindering) the market development. Governments for instance create and discard incentive policies for solar energy production and consumption. While these measures can have great impact, multilateral agreements are often criticized for not leading to changes in the market to diminish the amount of greenhouse gases. https://www.emerald.com/insight/content/doi/10.1108/cpoib-08-2019-0062/full/html

In another ongoing project, we study the business implications of coronavirus. It is evident that public actors took again a large role from closing restaurants to banning exports of masks and ventilators. The crisis bought new interesting questions from ’what is essential service’ and how can public actors determine and create metrics for defining ’essential’ to the questions on what kind of legislation is needed to limit free trade and secure national interest in forthcoming crises without deteriorating international competitiveness between the crises.

By having a better understanding of how public actors shape markets, it is possible to first guide them in making more informed decisions about market shaping as well as help companies in utilizing public authorities in driving the preferred market agenda. While interventions may hurt some market actors, for others political decision-making can be beneficial. We just need to make sure that the politicians are aware of various market-shaping mechanisms, make informed decisions in employing them, and ensure that the benefits of the intervention overcome the cost in the long run.

Valtteri Kaartemo
Postdoctoral Researcher, International Business D.Sc. (Econ.)