|  MAY 1988

Principles of market activity by Robert Pisani

Principles of market activity by Robert Pisani Fundamental to the branch of applied economics that I call Market Structure Analysis are three principles which I modestly call ""the Pisani Principles."" These elementary principles, certainly known to merchants—at least intuitively—since commerce began, describe the inherent relationships between price, volume and time, and point the way to the proper interpretation of this kind of market data. The Pisani Principles apply to any free market, for they are perfectly general and express the motivations of market participants in a way that is, in some sense, complete. As such, they express also the limits of the reasoning and the conclusions that can be logically derived from price, volume and time. These principles can be derived from the following simple consideration: sellers want to sell high volume at a high price in a short time, whereas buyers want to buy high volume at a low price in a short time. Thus, the buyer and the seller desires are compatible in two dimensions, volume and time, and compete in the third, price. In order to achieve their goals, both the buyers and sellers make compromises. Their needs in each dimension may be different. Their behavior, represented by the three-dimensional movement of the price-time-volume point, discloses their needs, motivations and priorities. For purposes of visualizing the action of these principles in the marketplace, it is helpful to think of two market participants, a buyer and seller, occupying neighboring stores on a commercial sidewalk. The above consideration leads to the following two-dimensional presentations of the buyers' and sellers' three-dimensional motivations, stated as three principles, the Time-Volume Principle, the Price-Volume Principle, and the Price-Time Principle:

by Robert Pisani