market failure

(redirected from Market failures)

Market failure

The inability of arm's length markets to deliverer goods or services. A multinational corporation's market internalization advantages may take advantage of market failure.

Market Failure

A situation in which the market does not allocate resources efficiently. Market failure can occur for one of three reasons. It may occur when one party has power that can prevent efficient transactions from occurring. An example is a monopoly. A second reason is the possibility that an efficient transaction can have externalities (side effects) that reduce efficiency elsewhere in the market or the broader economy. Finally, market failure can occur because of the nature of certain goods or services. Some analysts believe that market failure is usually the result of insufficient government protection of property rights. Market failure has been cited as a reason for government intervention in the economy. See also: Government failure.

market failure

a situation where a MARKET either cannot serve as a means to allocate resources or where the resulting resource allocations would not maximize society's economic welfare. In the case of COLLECTIVE PRODUCTS, like defence, which are enjoyed in common by all consumers, there is no market to allocate defence resources. In other cases, markets exist but do not operate efficiently For example, a product the production and/or consumption of which involves large SOCIAL COSTS of POLLUTION (see EXTERNALITIES) may be overproduced and consumed since markets for these products take into account only the private costs of production and consumption, while products like vaccines may be underproduced and consumed because their positive externalities are not reflected in their market prices. Markets that are dominated by monopolists (see MONOPOLY) may not allocate resources efficiently since BARRIERS TO ENTRY may prevent firms from entering markets and expanding market supply in response to increased market demand. Finally, FACTOR markets may lead to socially undesirable income distributions when low-income workers are paid very little compared with other workers.

Market failure often necessitates government intervention to correct for such failure. Governments generally make decisions about the provision of collective goods and finance their provision through TAXATION. For products that involve pollution externalities, governments may impose corrective product taxes to discourage supply and consumption, while products with positive externalities may be subsidized (see SUBSIDY). Where markets are dominated by monopolies, governments can use COMPETITION POLICY to regulate the prices charged by monopolists and/or supply terms. Finally, governments can intervene to correct socially undesirable income distribution by correctives such as MINIMUM WAGE RATES to help the low paid, AGRICULTURAL POLICIES to subsidize farmers and PROGRESSIVE TAXATION to require high-income earners to pay more taxes. See PRICE SYSTEM, RESOURCE ALLOCATION, ALLOCATIVE EFFICIENCY, WELFARE ECONOMICS, ROAD CONGESTION.

References in periodicals archive ?
This mechanism does not allocate resources efficiently in agriculture resulting in many market failures such as but not limited to the following cases:
Summary: Pursuant to Article 14 of the Regulation of the Financial Market Council (CMF) on market failures, PARTNER INVESTMENT, a wholly-owned subsidiary of POULINA GROUP HOLDING, declared that it acquired 305,450
Our supervisory philosophy is to implement cost-effective regulations to mitigate market failures and thereby promote a sound and efficient financial sector for New Zealand, said Head of Prudential Supervision Toby Fiennes in a speech today to the New Zealand Bankers Association.
Morality, Competition, and the Firm: The Market Failures Approach to Business Ethics.
In addition, students are expected to study the effectiveness of government policies such as subsidies, taxes, quantity controls, and public provision of goods and services, which are designed to correct market failures and achieve economic efficiency.
For a small-sized population such as Namibia, we can only emulate such a model by addressing through the enforcement of competition policy and law, market failures associated with a substantial reduction of competition while at the same time addressing certain aspects of market failure which are consumer protection related such as unfair deals and lack of information disclosures on consumers.
It will address market failures in the composites materials and innovative manufacturing sector--enabling the design and manufacture of lightweight vehicles, structures and devices that would otherwise take place abroad.
Externalities, both positive and negative, are the most common explanation for market failures.
While regulation is critical, the sector has to demonstrate responsibility by developing its own solutions to market failures, shifting focus from products and profits to service.
For examples of other energy-related market failures, see Saving Energy, Growing Jobs, by David Goldstein.
In the forthcoming seismic shifts in water use, continued reliance upon regulation of hydrologic externalities will only increase the potential for catastrophic market failures or inefficient water use that a water scare society can no longer afford.
A charge that purely market-oriented economists lay at welfare-state economists' door is that government is a very real danger and one that compounds market failures.