Changes

When an economic agent in a market has market power as the result of an imperfectly competitive market, a market failure can occur. [[Monopolies]] (one seller of a good or service) and [[oligopolies]] (few sellers) can take advantage of their control of finite resources or other [[barriers to entry]] in a market in order to charge prices that are much higher than the cost of production. This puts consumers at a disadvantage. On the other hand, [[monopsony|monopsonies]] (one buyer of a good or service) and [[oligopsony|oligopsonies]] (few buyers) can take advantage of their situation by playing sellers off each other to artificially drive down prices and make demands that increase suppliers' costs.

When an economic agent in a market has market power as the result of an imperfectly competitive market, a market failure can occur. [[Monopolies]] (one seller of a good or service) and [[oligopolies]] (few sellers) can take advantage of their control of finite resources or other [[barriers to entry]] in a market in order to charge prices that are much higher than the cost of production. This puts consumers at a disadvantage. On the other hand, [[monopsony|monopsonies]] (one buyer of a good or service) and [[oligopsony|oligopsonies]] (few buyers) can take advantage of their situation by playing sellers off each other to artificially drive down prices and make demands that increase suppliers' costs.

Monopsonies and oligopsonies are not often given much attention by regulators, but most countries, including the U.S., have strong [[antitrust laws]] to prevent monopolies. It is a concensus among economists that unregulated natural monopolies can have negative effects on a market, however economist [[Milton Friedman]] has argued that laws against monopolies do more harm than good and these problems can be better solved with [[free trade]].<ref>Friedman, Milton and Friedman, Rose. ''Free to Choose: A Personal Statement''. 1990. Mariner Books. ISBN 978-0156334600</ref>

Monopsonies and oligopsonies are not often given much attention by regulators, but most countries, including the U.S., have strong [[antitrust laws]] to prevent monopolies. It is a consensus among economists that unregulated natural monopolies can have negative effects on a market, however economist [[Milton Friedman]] has argued that laws against monopolies do more harm than good and these problems can be better solved with [[free trade]].<ref>Friedman, Milton and Friedman, Rose. ''Free to Choose: A Personal Statement''. 1990. Mariner Books. ISBN 978-0156334600</ref>

===Asymmetric Information===

===Asymmetric Information===

Asymetric information is where one party in a transaction has more complete or more accurate information than another party. This is significant because an important assumption of competitive free market theory is often that all who participate in the market have perfect information about everything affecting their decisions.<ref>Perloff, Jeffrey M. ''Microeconomics''. 2004. Pearson Addison Wesley. ISBN 978-0321160737</ref> Classic examples of asymmetric information include the used car market, where sellers often have better information about the quality of the car than buyers, and the [[health insurance]] industry, where buyers of insurance have better information about their health and their risk factors than insurance companies do. Proponents of health care reform point to this type of market failure as an important underlying cause for rising insurance costs that needs to be addressed.<ref>"The Economic Case for Health Care Reform." Retreived February 12, 2011. http://www.whitehouse.gov/administration/eop/cea/TheEconomicCaseforHealthCareReform/</ref>

Asymmetric information is where one party in a transaction has more complete or more accurate information than another party. This is significant because an important assumption of competitive free market theory is often that all who participate in the market have perfect information about everything affecting their decisions.<ref>Perloff, Jeffrey M. ''Microeconomics''. 2004. Pearson Addison Wesley. ISBN 978-0321160737</ref> Classic examples of asymmetric information include the used car market, where sellers often have better information about the quality of the car than buyers, and the [[health insurance]] industry, where buyers of insurance have better information about their health and their risk factors than insurance companies do. Proponents of health care reform point to this type of market failure as an important underlying cause for rising insurance costs that needs to be addressed.<ref>"The Economic Case for Health Care Reform." Retreived February 12, 2011. https://www.whitehouse.gov/administration/eop/cea/TheEconomicCaseforHealthCareReform/</ref>

===Common-pool Resources and Public Goods===

===Common-pool Resources and Public Goods===

The [[free rider]] problem, where someone benefits without paying, is common with public goods. Because this can lead to underproduction/underdevelopment of public goods (and services), the government often provides such goods or services (e.g. national defense, public parks, the internet). Economist [[Ronald Coase]] has argued that some public goods can be effectively privatized.<ref>"The Lighthouse Logo." The Independent Institute. http://www.independent.org/aboutus/lighthouse.asp</ref>

The [[free rider]] problem, where someone benefits without paying, is common with public goods. Because this can lead to underproduction/underdevelopment of public goods (and services), the government often provides such goods or services (e.g. national defense, public parks, the internet). Economist [[Ronald Coase]] has argued that some public goods can be effectively privatized.<ref>"The Lighthouse Logo." The Independent Institute. http://www.independent.org/aboutus/lighthouse.asp</ref>

The [[tragedy of the commons]] can be the result of a common-pool resource being exploited by many parties acting in their own self-interest. Privitization of a common-pool resource - with singular ownership - can eliminate the likelihood that a resource will be overexploited (exploited at a rate that does not maximize total benefits) or depleted, but there are often significant logistical issues with this. Political scientist Elinor Ostrom has developed design principles for common-pool resource management, which include clearly defined boundaries and rules regarding appropriation and revision of resources, effective monitoring, and sanctions for violators.<ref>Ostrom, Elinor. ''Governing the Commons: The Evolution of Institutions for Collective Action''. 1990. Cambridge University Press. ISBN 0521405998</ref> These principles can be used by governments or by a group of interested parties creating a community organization.

The [[tragedy of the commons]] can be the result of a common-pool resource being exploited by many parties acting in their own self-interest. Privatization of a common-pool resource - with singular ownership - can eliminate the likelihood that a resource will be overexploited (exploited at a rate that does not maximize total benefits) or depleted, but there are often significant logistical issues with this. Political scientist Elinor Ostrom has developed design principles for common-pool resource management, which include clearly defined boundaries and rules regarding appropriation and revision of resources, effective monitoring, and sanctions for violators.<ref>Ostrom, Elinor. ''Governing the Commons: The Evolution of Institutions for Collective Action''. 1990. Cambridge University Press. ISBN 0521405998</ref> These principles can be used by governments or by a group of interested parties creating a community organization.

==References==

==References==