Mkt_failure_regulation_deregulation_-_re - MARKET FAILURE...

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MARKET FAILURE, REGULATION & DEREGULATION Thus far, we have learned that of market structures, the competitive market leads to the most efficient allocation of resources for society in that the socially optimal quantities of the goods are produced—that is, the quantities produced by the markets provide the largest producer and consumer surplus that can be attained. We say that the competitive market is economically efficient . However, in order for a perfectly competitive market to exist, several conditions had to be met: 1. many producers, each producing the same identical good, each using basically the same technologies of production (i.e., same production function) since every producer has the same information, each having full information about costs, and with no one (or few) producers with market power 2. many buyers that have full information about availability, prices and quality of goods, including substitutes for and complements of the good 3. all costs and benefits are reflected in the market prices; that is the demand curve reflects the “true” benefits to society from consuming the good, and the supply curve reflects the “true” costs to society of producing that good 4. no natural monopoly whereby there are strong economies of scale present (that is, the average total cost is continuously declining for larger quantities). It is very rare for these conditions to be met, and in fact, as we have already noted, the majority of industries/markets are characterized by monopolistic competition where a producer has a differentiated product (and hence some market power over its own product) that has many substitutes. There are also industries/markets that are characterized by monopoly or oligopoly . In all of these cases, we saw that the quantities of the good that is produced would occur at a less-than-optimal point. Economists refer to such instances where the market fails to lead to the socially optimal outcome as market failure . Definition: Market failure refers to instances where an imperfection in the market structure leads to suboptimal outcomes.
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But market failure is an economic issue in that we are concerned about the inefficiencies that arise from a market that is not a perfectly competitive one. As noted in Slavin, however, much of the impetus for antitrust policy in the U.S. comes largely from a concern over fairness and equitability to American consumers. ANTITRUST POLICY IN THE U.S.: Antitrust policy refers to laws that restrict the formation of monopolies (or monopoly-like power) and regulate certain anti-competitive business practices (such as price fixing by oligopolists). History of Antitrust in the U.S. The history of antitrust policy in the U.S. goes back to the late 19
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Mkt_failure_regulation_deregulation_-_re - MARKET FAILURE...

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