Economic Environment Inappropriate levels of competition amongst both buyers and sellers as a cause of market failure Inappropriate levels of competition refer to the situation where the market has not attained an optimal position in term of supply and demand. This is where supply and demand requirements of the suppliers and consumers do not lead to the achievement of an optimal equilibrium condition in the market resulting in market failure. These instances may either be due to the presence of a monopoly, an oligopoly, or a monopsony in the market leading to the presence of market failure in the economic environment. A monopoly is where there is only one seller in the market and sets high prices than the prices at which the buyers are willing to buy at leading to the restriction of supply quantity and a reduction in the demand of the consumers for the product due to the high prices (Varoufakis, 1998). One example of a monopoly is the government of Saudi Arabia that has total control for supply of oil and the whole oil industry. Other examples include Sky film that has led to increased prices in the pay television business in the UK.
Inappropriate competition may result to an oligopoly, which is a form of market failure where a small number of firms dominate the market and decisions by one firms influences that of other firms in the market (Howard et al., 2009). Collusion among the firms leads to setting of higher prices and limiting of supplier affecting the consumers in the market. Examples of oligopolies include Tesco, Sainsbury, Morrisons, and Asda, which have 74.4% of the grocery market and Barclays, HSBC, Lloyds TSB, Natwest, and Halifax, which together dominate the banking sector in the United Kingdom. Inappropriate information may also result to a situation characterized by one buyer influencing the decisions of the suppliers in the market, a situation referred to as a monopsony (Ferguson, 2004). An example of a monopsony in the Natural Led Lumber Media Company where it is the only company conducting lumbering operations in Lumber town.
As demonstrated in the above examples of monopoly, oligopoly, and monopsony as cases for inappropriate competition, leading to market failure, which results in the lack of a free market mechanism for allocation of goods and services demonstrated by these conditions in the market.
HOWARD, M., LA FOUCADE, A. D., & SCOTT, E. (2009). Public sector economics for developing countries. Kingston, Jamaica, University of the West Indies Press.
VAROUFAKIS, Y. (1998). Foundations of economics a beginners companion. London, Routledge.
FERGUSON, C. H. (2004). The broadband problem: anatomy of a market failure and a policy dilemma. Washington, D.C., Brookings Institution Press.