Markets and negative externalities

A generous description of any commonplace urban public marketplace in India (or for any developing country) would be that of disorder and melee. Such public grocery, vegetable, fish and meat markets attract large numbers of hawkers selling a whole variety of regular consumption items. Exacerbating the disorder and confusion created by the hawkers are the riotously parked bicycles, motorcycles, and cars belonging to the customers. Most often the area becomes a traffic nightmare and inconveniences everybody. Unfortunately, we see this problem as a regulatory failure and continue to set up such markets across our cities on this assumption.

These markets draw in predominantly poor, lower-middle and middle class consumers, whose general propensity is to make their purchases of basic kitchen and other household necessities during their market shopping trips. Further, they make their purchases of these items typically from small hawkers and roadside stores. This incentivizes hawkers peddling these regular consumption items to set up shop around the public market. Besides, these markets and its immediate surroundings also provide a focal point for those traders who have missed out getting a stall or shop allotted in the public market. In fact, a significant proportion of the hawkers around such markets belong to the aforementioned category.

Thus it is inevitable that vegetable markets get swamped with still more vegetable vendors and fruit hawkers. Policy makers and planners fail to recognise the reality that these public markets become market organisms whose utility and importance goes much beyond the mere supply of the designated specific commodities. They become the pivot around which an entire set of unorganized commercial activity gets developed, which can neither be prohibited or disincentivized. This is much like the village shandy, which hosts the entire spectrum of small commercial activity, covering all the basic household goods. And I am inclined to believe that it is desirable that these public market places develop like the shandies, encouraging small traders and entrepreneurs, while meeting consumer demand for a one-stop shopping convenience for middle class households.

Urban planners need to be receptive to the fact that any urban public market place comes as a package - hawkers, mobile vendors, parking etc. In many respects these elements form a negative externality imposed by the market. It is important that we factor in this reality in planning our market places. This implies that we locate our public market places in areas where there exists enough space for parking and the other informal commercial activity, besides being away from major traffic areas. Even if this means inconveniencing the customers by their having to travel farther, instead of the convenient walk down to the next street!