...is pretty much the argument of Rand Paul when he objects to the Civil Rights Act. In theory, his unrestrained marketplace facilitates self-interest, which in turn undermines ages-old biases against historically disfavoured groups. To Rand Paul, the profit motive deinstitutionalises racism (or sexism, homophobia, etc.) because it induces defection by the racists. Yesterday's Woolworth's becomes amenable to integration when it feels the H.L. Green down the street might do the same; all the chains' interests may be promoted by racism, but each one individually senses a windfall by bailing. And the mere threat of that apostasy crumbles the cartel. Each restauranteur ends up fearing another's opportunism so much that the party makes a pre-emptive strike.
But let's think about that more concretely. What we've really got premising the argument is that greater exposure to consumers raises demand. That demand boost, then, raises prices: the more parties bidding for your product, the more you can afford to be selective. The more you can translate that into profit, the more you're poised to drive out competitors. Etc., etc. And if that's not the ultimate argument to break ranks–losing your shirt if you don't–I don't know what is. Who would ever choose cooperation in that world?
But here's the rub: "rational self-interest," that oft-repeated heuristic of what drives things at the micro level, often works in favour of such prejudice. It does so in two ways: a) rationality itself isn't as simple as profit maximisation, and b) profit maximisation doesn't presume it is. Starting with a), some people derive utility in perpetuating hollow distinctions–race, creed, whatever. And sometimes, the value of maintaining those lines leads to a considerable diminution in the power of profit. In places where that dynamic's in play, demand becomes responsive to discrimination, just like it is to scarcity or price. And in such markets, suppliers perceived to be noncompliant take a hit: their customers place a price on compromising their "values," and often decide that it's not a price worth paying. That's where b) picks up. Woolworth's, like many contemporaries, wasn't immune to this. In fact, they were intimately sensitive to it. Expanding their market exposure would have, ironically, undermined the very point of making the move: the increased consumer base would have been offset by the backlash of whites. In that environment, ought one really expect the market to "prevail?" In a sense, it already did: and it created the very problem that some now hope it'll solve.
But that's not to say Mr. Paul's proposals are entirely without merit. Contemporary American society doesn't, on balance, value racial insularity the way it used to. I don't live in the Deep South, so I can't speak to the power of residual racism there. But I don't think my perceptions are too unrepresentative for that. (We're past the age of Jim Crow and church bombings; surely that means something?) And as far as I can tell, American consumers wouldn't begrudge integrationist suppliers too much. But then again, whether that's dispositive is a matter of degree. If we repealed the CRA tomorrow, and retailers did end up feeling a push to resegregate, the market would be colluding in the very crime it was assigned to police. But if, instead, we do live in a quasi-post-racial world, then perhaps that same policeman could serve as a natural prophylactic.
I think, at bottom, it's naive to believe the market cures racism. The market operates on parameters we set, optimising utility as we fickle humans choose to define it. If utility is essentially a function of financial self-aggrandisement, then yes, it can serve to neuter race. If, however, we're a gaggle of racist dolts, then it'll adapt to that too.
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