Samsung an example of how the free market works

A few weeks ago, Samsung requested its sales partners to cease selling its phablet (phone/tablet), the Galaxy Note 7, not only in the USA, but worldwide. Initially, the Note 7 was recalled because of overheating and bursting into flames while charging, but now the problem has arisen with replacement units as well. As bad as this whole episode is for Samsung’s bottom line, it gives us a clear example of how the free market works. A huge corporation sell a product, finds that it is faulty, makes the replacement process easy, and then does the right thing by ceasing sales, at enormous cost to them.

Samsung did not need the US government or any other to instruct it to halt sales. It did that itself as soon as it saw it had made a bad decision; no government intervention needed. The recall and replace process followed by Samsung was quick, smooth and efficient. How long would a government-led process have taken? And how much harm would it have inflicted? Samsung is a massive corporation with incredible income and reach, but, unlike a government, it cannot act with impunity, as governments do, because it has competitors, big and small.

Thanks to the proliferation of mobile technology (despite myriad government regulations) people have easy access to information, and news, especially bad news, travels incredibly fast. There is no real free market economy anywhere in the world, but to the extent that markets are free, there is stiff competition. This competition for people’s hard-earned money is such that even the tiniest oversight or mistake is judged harshly by every individual customer. Each customer has the option to say no and choose to go elsewhere. Even if Samsung creates the perfect Android device, thousands of people would still prefer something else for their own reasons. Thanks to competition, they have the option to spend their money elsewhere.

Samsung could have gone ahead with sales of the Note 7 and waited to face government penalties, but the damage it has suffered in the market through producing a faulty product is a lot worse. To be clear, Samsung recalled its phones to prevent injuries and to ensure its good reputation moving forward.

A free market gives everybody the freedom to do as they wish with their money. Samsung was free to innovate and push boundaries, but unfortunately for them, some of those advances have now resulted in a loss in profit. We, as participants in that market, can punish companies and people who make mistakes by taking our money elsewhere. Companies have to innovate to convince us to part with our money. If you value efficiency and accountability, you go to a business, you do not go to a government department. Companies and industries that enjoy government influence and backing rely more on the support they receive from governments protecting them from competition and forcing people, by one means or another, to buy their product than on innovation and efficiency.

The US Consumer Product Safety Commission commended Samsung for calling for a sales halt. And we should do so too. It made a mistake and its profits will reflect this as it pays for any damage caused. To be commended is the way Samsung acted, freely, rationally and morally.

This episode with Samsung is an example of how a company, even one as big as Samsung, has to ensure that it acts well in a competitive market because we, the customers, can hold companies like Samsung to account through the mechanism of the free market. Despite its size, to Samsung its customers are royalty and it has to consistently act well to hold onto and attract new customers. Samsung made a grave mistake and is now paying for that mistake. It deserves our praise for acting in such an exemplary manner.

Author Chris Hattingh is a Free Market Foundation intern. This article may be republished without prior consent but with acknowledgement to the author. The views expressed in the article are the author’s and are not necessarily shared by the members of the Free Market Foundation.

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