yep i agree with what your saying, i think we are talking about different things though, obviously a buyer and seller meeting means an equilibrium but i think the discussion was more about the effectiveness of markets in producing an equilibrium, this is questionable. I don't think anyone can really disagree on this topic.
If we are discussing market types in producing price such as monopoly - oligopoly or perfect competition (I'm afraid to use the word perfect) you have a point but otherwise what alternative is there to a market bringing buyers and sellers together?
So the point is maybe there are two happy people ( i think houses are tricky point esp if you apply cost benefit analysis as opposed to financial) but in a pure financial sense, people buying the top of say internet stocks or tulipmania whatever, their perceptions of true value was obscured, market was unable to produce the correct price and the prices weren't based on any fundamental basis of value. Surely this is a view T+1 after the event. Some piece of news - event or knowledge comes into the marekt changing those perceptions. With millions of transactions in any moment in time it is inevitable some people get burnt. Markets are not static but dynamic.
True value obscured? Great old Marconi and Ferranti comes to mind based on fictitious invoices.
Market was unable to produce correct price? Is this like an IT failure?
Price is seldom based on any fundamental basis of value? Product differentiation - it's all about the image and nothing to do with taste!
Each of these can be argued for or against either way.
And with cars again, imperfect information isn't to do with search costs or anything, it is the fact that the person selling it to you knows more about it than you do so often you have to rely on other ways to ascertain the reputation of the seller to know you aren't getting ripped off ie advertisments etc. Stigliz wrote about this expansively. Another example of imperfect info is the doctor, you don't have time to get a medical degree so you have to trust the doctor and you rely on professional bodies etc. Imagine the problem of imperfect information when there is something like complex financial derivatives and when any basis for pricing the item is questionable completely unlike a car. To say someone like Robert Citron carried out due diligence on the derivatives he was buying is laughable.
But ultimately, what can you do? There isn't perfect information, there can't be and equilibrium/fair price is really in the eye of the beholder.
So how does one explain any transaction, if there can not be equilibrium / fair price?
Would you say we move from one state of disequillibrium to another based on imperfect information perhaps?
This brings to my mind something called the web theorem of price adjustment - particular to farming produce. That is where there is a long time lag between todays price and what farmers plant / produce next year.
For example if the price of rice is high this year due to shortage of supply because most farmers planted onions last year, then next year they will not plant onions due to excess supply but plant rice which fetches a higher price.
However, if all farmers have the same information and they all carry out the same practice then following year price of onions will rise whilst price of rice fall as now too many farmers planted rice last year based on higher price the year before.
This variance in crop production based on previous years price effectively means produce supplied is based on price two periods away and thus never meets equilibrium.
The flaw with this thinking / theorem is that it ignores any learning effect or intelligence.
Essentially, where there is imperfect price information there is a learning process and behaviour adjustment on side of suppliers or consumers.
For example if your Doctor who you trust starts giving some imperfect diagnosis - sooner or later his reputation will exceed him.
In derivatives - you dabble based on your own risk - let the buyer beware. If you want to base your trades on your own whims (because you have no information) or others (who you believe have perfect information) sooner or later you will learn based on returns whether it is your cup of tea or not.
To cut a long story short - gravitation to equilibrium and the seeking of knowledge to form transactions between buyers and sellers is a constant process.
Sometimes I think people who are not familiar with economics simply object to the word perfect and equilibrium.
Perhaps if we subplant perfect with good information and equilibrium price with fair price people may display less reaction...
