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Market failure: A case study - Essay Example

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In the paper “Market failure: A case study” the author analyzes the situations where the forces of the free market are incapable of making efficient allocation of resources. This leads to the situation of inefficient market condition. Various reasons might lead to the violation of market stability…
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Market failure: A case study
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Download file to see previous pages There are various studies that look into the ways in which the market failure is corrected. The case of intervention by the government is considered by economist and policy makers for the development of policies to deal with a situation of market failure (Salanié, 2000). However, for understanding the ways to correct market failure, insights into the sources of market failure is required. Some economists generally define the condition of market failure in terms of the public goods or the theory externalities. The way the market is defined explains the source of the market failure. If the market is defined in terms of quality of the environment, then in case of market failure the source of it is traced back to issues in accessibility of public good. Alternatively, if the market is defined in terms of the system of production and consumption that causes some damage to the environment, the source of failure is identified as an externality (Callan and Thomas, 2010). Essentially, market failure is the situation in which there is over supply in the market (misallocation of resources). Since supply is abundant, price received for the good or service is less than the true cost of producing the good (in terms of resources consumed for producing the good) (Dollery and Wallis, 2001). The Competition Commission of the United Kingdom is “an independent public body” (Competition-Commission, n.d.) which looks after the condition of the market in the country. The Commission ensures that there is a healthy competition.  among the companies operating in the UK market so that the consumers and the entire economy as a whole ultimately benefits. The body is responsible for conducting investigations on different market activities and for making various other enquiries related to the policies of regulations in different industries in the country. It makes all efforts to preserve the “competition law in the United Kingdom” (Competition-Commission, n.d.). It is a competition regulatory body in the Department for Business, Innovation and Skills (BIS) in the UK. It ensures the establishment of healthy competition among private companies in the UK for ultimately benefitting the consumers as well as the entire economy.
The Competition Commission was developed in the 1999 and replaced the Monopolies and Mergers Commission. The activities of the Commission are guided by the policies of the Competition Act 1998 and currently, most of the powers are exercised by the Enterprise Act of 2002. This act has provided the Commission with significant power and it enjoys greater levels of independence than that the Monopolies and Mergers Commission had enjoyed previously.
Attempts to correct market failure
The power of the Commission is not restricted to offering recommendations to the government. Higher power and greater independence of decision allows the Commission ...Download file to see next pagesRead More
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