Oligopoly Market Failure

Market failure exists when the operation of a market does not lead to economic efficiency. It is a situation where a free market does not produce the best use of scarce resources. Typical examples are when externalities are present, when there is monopoly power or where it is necessary for public and merit goods to be provided by the government or even when there is possible excessive profits or

A market failure is when a free market fails to appropriate resources efficiently. It occurs when the supply of good or service is insufficient to meet the demand. Government regulations that promote social well being results in a stages of market failure.economist identify market failure to be monopolies,missing markets incomplete markets, demerit goods and negative externalities . health care in america is a market failure were the externalities of the system I'd the care provided to others. Benefiting from people being healthy reducing any illnesses.in health are there are to many uncertainties.there will be people who will not pay.for example if a person who is always healthy and less propable of getting sick is not going to pay for health

Market failure is the inability to produce the optimal or ‘best’ outcome for society. Market failure occurs when recourses are not allocated efficiently, total surplus is not being maximised. Market failure can be caused by:

When an economy is not performing efficiently as it should there is said to be “market failure”. The recommendation by economists is for government actions to correct such failure, such as taxes to help reduce pollution but in return increasing taxes on goods and services will raise the prices and cause inefficient operation of the market. In addition, taxes on incomes can create a disincentive effect and discourage individuals from working hard, thus reducing productivity which leads to slower growth and development within that country. Hence the diagnosis of market failure may be accurate, but the call for government involvement may be one that is naive and inappropriate.

The Market Model (figure 1) shows that there is a gap between supply and demand. This is demonstrated by two curves which are the demand curve and the supply curve. Consumers of a product are encouraged to increase purchasing when the government decreases prices and as price rises to decrease purchasing, whereas, suppliers are encouraged to increase production when prices are high and decrease production when prices fall. The market model shows that at one point the demand curve and the supply curve intersect. This is called the equilibrium price where production is equal to demand thus there is no surplus and no shortages. Figure 1 can also describe a Pareto efficient economy. This is “where all possible Pareto improvements have been made: where, therefore, it is impossible to make anyone better off without making someone else worse off“(Sloman, Wride and Garratt, 2012, p 318).

There are a number of reasons as to why markets fail and there are five different types of markets that this can be brought down to. These include: Monopoly, Collusion, Asymmetric information, Externalities and Public good and the free rider problem.

The word “efficiency”, in economists’ dictionary, is often interpreted into the degree of an economy allocates scarce resources to meet the needs and wants of consumers. As we can see that a free market economy is the one in which resources are allocated based on the principle of self-interests. Where there are profits, there are firms, and where there are firms to produce identical goods and services, inevitably, there is competition. The degree of competition determines the market structure which is the main determinant of the behaviour or conduct of firms. This in turn determines the efficiency in the use of scarce resources. It is often argued that competition leads

Market failure means situation in which an unregulated competitive market is inefficient because prices fail to provide proper signals to consumers and producers.

Market failure is the market cannot efficiently allocate goods and services. Only completely competition market mechanism is the most efficient market mechanism, in addition to this, others are all included in market failure. And in actuality, because of various of factors, it cannot obtain the completely competition market mechanism and produce the loss of efficiency (MacKenzie, 2002).

When a company suddenly loses market share, which is tantamount to a company eventually closing its doors. Hence, when one a company lowers its prices, increases its ability to produce or opens a new channel, it forces the other companies to react accordingly or risk losing market share (Dubovik & Janssen, 2011). Interestingly enough, this mimicking behavior creates an “interdependence” among the oligopolistic companies. Economists, due to this behavior of these companies, have been incapable of developing a respectable oligopoly theory. Since there are only a limited number of competitors, these companies are acutely aware of the resulting effects of their decisions has on the other companies.

Market Failure in Economics Market failures have become a common phenomenon and now that the world has opened up things are much faster paced and things happen much quickly then how they used to happen in the past. It is the over dependency of the nations on one another that have brought these economic crisis on one another and the last century was full of such instances. There was no winner or loser in such a case and in the end it was the common man who lost a lot. These are the happenings, which suggested that it was about time checks and balances were put in place and in the end it was necessary that such things could be avoided for good for the betterment of the people. The crash of 1929 started a recession that lasted for almost a decade and it engulfed the entire world in the problem. Had the people been able to predict it, it would have been avoided but that was not the case and the crisis was so massive that prices shot up like anything and the jobs were slashed. At the end of the day it was very costly and the entire world economy collapsed. It showed how vulnerable can the free market economy be. It also showed how dreadful it can be if the market failure and the collapse of an economy is not cushioned in the nick of time to reduce the potential damage that can be caused. The crash on Monday 22nd October 1929 in New York Stock Exchange was probably the biggest dilemma of economic nature faced by the world. It was a problem that engulfed the entire world causing

Why do markets fail to generate socially desirable outcomes? Markets are not infallible. They can fail to organise economic activity in a socially desirable fashion. Markets failure are due to social inefficiency and inequity. In the real world, the market rarely leads to social efficiency: the marginal social benefits of most goods and services do not equal the marginal social cost. Part of the problem is the existence of 'externalities', part is a lack of competition, and part is the fact that markets may take a long time to adjust to any disequilibrium, given the often considerable short-run immobility of factors of production. Let's analyse the types of market failure.

When considering efficiency for produced goods, there is an optimal theorem that requires all marginal rates of substitution to be equal. Some says even perfectly competitive markets fail to achieve efficiency, the production of some goods may have side effects that are not exchanged over the market, and markets do not take into consideration of those side effects, which can lead to inefficiency of over or under producing of a good than society desires. This reasoning fails to take account of the fact that the provision of side effects is a valuable and costly service, so that a market of this service might not even exist. If this service is not being produced, it is the inequalities of some produced goods among marginal rates of substitution that may be consistence with efficiency.

Market failure:A condition in which a market does not effecintly allocate resources to achieve the greatest possible consumer satisfaction. As a result of market failure, government intervene in the economy. (John O. Ledyard ,2008) Eg: Because of the price of apple was increased last year, this year many people to plant the apple tree,and the number of apple sharply increased. So the supply exceeds demand, and the price sharply decreased. Government: An important function of government is to communicate its Macro economic objectives. A principal communication tool used to communicate the economic intentions of the government is budget. (Aidan R. Vining, 2004)

Ignoring the emergence of new markets however small they are is doomed to failure of an economy