What is market discipline?

Market Discipline

Buyers and sellers in a market are said to be constrained by market discipline in setting prices because they have strong incentives to generate revenues and avoid bankruptcy. This means, in order to meet economic necessity, buyers must avoid prices that will drive them into bankruptcy and sellers must find prices that will generate revenue (or suffer the same fate).

Read more about Market Discipline.

Some articles on market discipline:

General Principles of Bank Regulation - Market Discipline
... As a result of this, the bank is subject to market discipline and the regulator can also use market pricing information as an indicator of the bank's financial health ...
Market Discipline - Deposit Safety Nets
... was instituted in 1934 to restore depositor trust into the financial markets following the devastation of the Great Depression ... Concerning market discipline, one can easily say that mispriced deposit insurance distorts the incentives of depositors to monitor bank risk taking activities ...

Famous quotes containing the words discipline and/or market:

    If the factory people outside the colleges live under the discipline of narrow means, the people inside live under almost every other kind of discipline except that of narrow means—from the fruity austerities of learning, through the iron rations of English gentlemanhood, down to the modest disadvantages of occupying cold stone buildings without central heating and having to cross two or three quadrangles to take a bath.
    Margaret Halsey (b. 1910)

    But the nomads were the terror of all those whom the soil or the advantages of the market had induced to build towns. Agriculture therefore was a religious injunction, because of the perils of the state from nomadism.
    Ralph Waldo Emerson (1803–1882)