2 thoughts on “Clearing up some confusion about ‘market failure’”

  1. Posted 26/01/2012 at 13:49 | Permalink

    I made a very similar point in a blog on 9 January. The concept of “market failure” is a debatable one as it derives from the neoclassical ideal of perfect competition, but Tom is right to point out that it has a textbook definition on which students at all levels could set Mr Cameron right. Less prominent in textbooks is “government failure” which is probably much more important in reality. Interventions based on misunderstandings such as those propagated by Messrs Cameron and Cable are not going to achieve the results they hope for. Then no doubt they’ll be calling for something draconian. It is all very disappointing. Frankly I am beginning to feel that the previous government understood some aspects of markets better than this lot!

  2. Posted 26/01/2012 at 18:09 | Permalink

    It should be pointed out that there can be good economic reasons for monopolies to emerge under free-market conditions. The danger comes when governments create artificial barriers to entry that shut out competition.

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