market failure
Ryan Cook
POSI 4322
3:30 PM
Market Failure
Ideally, a free market is the means by which people exchange goods and services in a safe and unrestricted context. In a liberal democracy, such as that of the United States, it is accepted to varying degrees that government has a role in ensuring that the “free” component of markets does not develop into a force which undermines the “safe” component. Therefore, some restrictions are in fact necessary. This paradox of government restricting certain behaviors in order to ensure a more general freedom is central to markets, and the push and pull between these forces is unending.
To many the term market failure might suggest a collapse of the economic system. However, a market failure, although it may lead to collapse, is much more fundamental. A market failure can be understood as any instance in which either economic freedom or safety has been compromised within the marketplace. One of the more obvious iterations of market failure is monopoly. Perhaps the most widely recognized concept of a monopoly is when a company pushes competition to the margins by buying out its competitors in a commodity or service sector. While such a scenario does indeed constitute a market failure, there are in fact instances in which monopolies are not destructive, but natural. Although monopolies loom large in the public imagination as being uniformly nefarious, natural monopolies arise not by aggressive or illegal marginalizing of the competition, but because they are actually in a singular position to provide a good or service. A good example of this phenomenon is Microsoft operating systems. Microsoft was the first company to successfully develop and market the basis of today’s technological infrastructure, so the infrastructure itself is based on their operating system. Because the effort that it would currently take to retool this infrastructure for a different operating system is too inefficient, Microsoft can comfortably supply their
POSI 4322
3:30 PM
Market Failure
Ideally, a free market is the means by which people exchange goods and services in a safe and unrestricted context. In a liberal democracy, such as that of the United States, it is accepted to varying degrees that government has a role in ensuring that the “free” component of markets does not develop into a force which undermines the “safe” component. Therefore, some restrictions are in fact necessary. This paradox of government restricting certain behaviors in order to ensure a more general freedom is central to markets, and the push and pull between these forces is unending.
To many the term market failure might suggest a collapse of the economic system. However, a market failure, although it may lead to collapse, is much more fundamental. A market failure can be understood as any instance in which either economic freedom or safety has been compromised within the marketplace. One of the more obvious iterations of market failure is monopoly. Perhaps the most widely recognized concept of a monopoly is when a company pushes competition to the margins by buying out its competitors in a commodity or service sector. While such a scenario does indeed constitute a market failure, there are in fact instances in which monopolies are not destructive, but natural. Although monopolies loom large in the public imagination as being uniformly nefarious, natural monopolies arise not by aggressive or illegal marginalizing of the competition, but because they are actually in a singular position to provide a good or service. A good example of this phenomenon is Microsoft operating systems. Microsoft was the first company to successfully develop and market the basis of today’s technological infrastructure, so the infrastructure itself is based on their operating system. Because the effort that it would currently take to retool this infrastructure for a different operating system is too inefficient, Microsoft can comfortably supply their