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: