Download 11.Other sources of market failure HL only

4. Imperfect Competition & Imperfect Information (HL)
In practice power often lies to a greater extent with producers than with
consumers. Most firms operate under conditions of imperfect competition with
monopolists and oligopolists able to restrict output and raise prices. They can
also prevent new firms from entering the industry. Governments will often
regulate markets where imperfect competition is highly evident.
Market failure also exists when an economic decision is made based on
incomplete information. One such case is known as asymmetric information,
where one party in a transaction has access to more information or better
information than the other party. In most cases the producer has more
information than the consumer and so can charge a higher price than is socially
efficient. Technology and the internet have had the effect on rebalancing this
relationship as consumers now have access to much more information.