The market clearing price is a function of supply and demand - that is all it is.
It has nothing to do with 'maximizing social surplus'.
Yes - it maximizes economic surplus, in the narrow context of that transaction, but that economic surplus does not necessarily reflect social good - moreover - supply and demand are functions of other things entirely.
The easiest way to see this is to look at Monopolies. Monopoly players of a critical good can extract vast, vast profits. What they actually 'do' with those profits is critical to understanding total social good.
Imagine a monopoly provider of gasoline to the US, that takes it's profits and puts them in a room - and does not invest it back into the economy.
This is not 'good' for anyone but the owner of that monopoly.
The same can be seen in rent-seeking in any number of places.
Also - BTW Netflix has about 1% EBITDA [1]. Their gross margins are not that important when you figure you have to pay for 'staff', R&D, 'networking', 'advertising' :).
No, totally not. Totally not.
The market clearing price is a function of supply and demand - that is all it is.
It has nothing to do with 'maximizing social surplus'.
Yes - it maximizes economic surplus, in the narrow context of that transaction, but that economic surplus does not necessarily reflect social good - moreover - supply and demand are functions of other things entirely.
The easiest way to see this is to look at Monopolies. Monopoly players of a critical good can extract vast, vast profits. What they actually 'do' with those profits is critical to understanding total social good.
Imagine a monopoly provider of gasoline to the US, that takes it's profits and puts them in a room - and does not invest it back into the economy.
This is not 'good' for anyone but the owner of that monopoly.
The same can be seen in rent-seeking in any number of places.
Also - BTW Netflix has about 1% EBITDA [1]. Their gross margins are not that important when you figure you have to pay for 'staff', R&D, 'networking', 'advertising' :).
[1] https://www.google.com/finance?q=NASDAQ%3ANFLX&fstype=ii&ei=...