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Introduction
How can a Company earn Superior Returns? What is a perfect market? What do we mean by Market failure?
Market Failure
Market failure is a concept within economic theory wherein the freely functioning markets fail to deliver an efficient or optimal allocation of resources. The market failure concept was used only as a normative concept to dene appropriate situations for government intervention in markets. Market failure exists when the competitive outcome of markets is not efficient from the point of view of the economy as a whole.
The economic rationale for government intervention Correction for market failure/loss of economic efficiency Desire for greater degree of equity in the distribution of income and wealth.
Recognize market failures and resulting opportunities for strategic success. Predict how governments and social groups will respond to market failures. Learn how to formulate strategies that build on these responses to improve your companys financial performance.
Market Power
Market power is the ability of a firm to alter the market price of a good or service. Market power is the presence of fixed costs because they limit the number of products that companies can offer in a market of a given size. It has the presence of Production economies, which might limit the number of competitors .
Imperfect competition can lead to a misallocation of resources Monopoly prices will normally be above those in competitive markets - loss of consumer surplus -output is below the competitive equilibrium level -loss of static (allocative and productive) efficiency Monopolists may waste scarce resources
Transaction Costs
Transaction cost is a cost incurred in making an economic exchange (the cost of participating in a market). Kinds Of Transaction Costs - Search and information costs - Bargaining costs - Policing and enforcement costs
Four Principal tools to prevent the failure of market for information goods and to protect Government intellectual property are 1.Patent 2.Copyright 3.Trademark 4. Trade secret
Externalities
Externalities effects arising from the production and or consumption of goods and services for which no appropriate compensation is paid. Externalities create a divergence between the private and social costs of production.
Negative externalities Over production of goods where the social cost>private cost Over consumption of de-merit goods where social benefit<private benefit
Information Imperfect
Information relevant to the sale or purchase of products or services that is privately held by one of the parties to the transaction. Adverse Selection.
The Importance of Non Customers Rivals cost, Willingness to Pay and Price Outcomes, Processes and Intensions
SWOT Analysis
Strengths: Weakness: Ability to spot Market Failures Inability to develop a product that can dominate the market. Ability to strategize and Inability to adapt to changes capitalize on Market Failure
Opportunities: Untapped Markets like rural Markets. Markets where there is Monopoly.
Threats: Government Regulations Pressure from Social Groups Threat from competitors
Government should look for Market failures Social Groups also play a vital role in overcoming market failures. Economists and technical experts should be appointed by the government to deal with market failures. Ensure that there is no monopoly or unfair trade practices followed by Companies Encouragement should be given to other industries to come up with close substitutes to avoid monopoly or market failure.
Recommendations
Spotting Opportunities early. Exploiting the opportunities. Predicting government and social response Analyzing the response and adapting to the Change. Explore Markets where there is a monopoly.
Conclusion
Market Failure Opportunities arising from Market Failure Factors to Be considered while formulating strategies. Be ready to change strategy and adapt to changes in the environment.
Thank You