What Are the Signs of Market Failure?

Market failure means that the optimal allocation of resources cannot be achieved through the allocation of resources through the market. It is generally believed that the causes of market failure include factors such as monopoly, externalities, public goods and incomplete information. ^[1]

Market failure

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(1)

Introduction

The deficiencies in the allocation of resources by the market mechanism are specifically manifested in the following aspects:

Unfair income and wealth distribution

This is because the market mechanism follows the principles of capital and efficiency. There is also the "Matthew Effect" in the principle of capital and efficiency. From the perspective of the market mechanism itself, this is a normal economic phenomenon. The more capital

(I) Comparison of the causes of market failure between China and the West

1. The failure of the Chinese market is mainly due to incomplete market development and reasons outside the market

China broke the planned economy and began to develop a market economy. It started in 1978, and it has been less than 30 years, and the market development is incomplete. It is prominent in the following aspects: The new planning system has not yet been formed to meet the needs of the socialist market economic system; In the allocation of resources, the basic role of the market and the guiding role of the state plan have not played well. The combination is still forming; in plan management, the material means for implementing plan control are weak, and the legalization of the plan is lagging behind; The mechanism has not yet been formed, which not only affects the uniformity and effectiveness of plan formulation and implementation, but also hinders the overall function of macro-control. [2] The incomplete market leads to weak market adjustment power or narrow adjustment range, which requires the coordination of public power.

Since the 1980s, China has begun to implement economic system reforms, relaxing and relaxing localities and industries, and achieving certain results. At the same time, it has also caused certain negative effects, resulting in inadequate and unjust administrative intervention. Driven by local or individual interests, administrative subjects often artificially deprive the market of its basic role. In order to protect local and political interests, local administrative agencies have joined forces with their affiliated enterprises to use administrative power to intervene and manipulate the market to build market barriers. To achieve the purpose of restricting competition. In addition, the management departments of some industries use their investment rights, resource management rights, and financial rights to build political barriers for the enterprises they manage to form an exclusive control. The privatization of administrative power has made the administrative tentacles excessively involved in the economy, manipulated the flow of social resources, and directed social resources to political markets rather than economic markets.

Administrative power controls the imperfect market, and causes the flow and allocation of resources to deviate from the role of traditional law of value. The law of value can only be helpless in the face of strong and powerful administrative power. How to limit the excessive intervention of administrative power properly and reasonably is an urgent problem to be solved.

2. Western market failures stem from market defects and laissez-faire economic patterns

The western market economy has experienced rapid development of the commodity economy since the industrial revolution, and the market is fully developed. Western economic society generally advocates the laissez-faire economic form, and due to the market's own shortcomings and the government's appearance as a "night watchman", which makes the market economy develop to a certain time, the significant characteristics of the market's effectiveness are broken and appear The phenomenon of "market failure".

The weaknesses and deficiencies of the market itself are mainly: market obstacles, market profitability, and the passiveness and lag of market regulation mechanisms. [3] Market obstacles are manifested as two unfavorable tendencies in market development, namely restricting competition and unfair competition. The emergence of two phenomena will seriously hinder market development. "People from the same industry come together for entertainment, rarely. The purpose of their conversation is to plan a conspiracy against the public, or to use some kind of fraud to raise prices." [4] The main body in the market , Often rely on their market dominance to violate the normal market transaction order to obtain illegal benefits, or take improper means to eliminate, restrict competition. In addition, in a capitalist social environment, capitalists are often concerned about the profitable goods in the industry, and it is difficult to enter the public and public welfare market. These areas are the bounden duty of market regulation to get involved in and make full use of resources. In addition, the market's passive and lagging information reflects the influence of Western countries. The cyclical economic crises in Western countries are evident. These shortcomings are difficult for the market to overcome.

(B) Differences in the manifestations of market failure between China and the West

Due to differences from history and from the actual political and economic systems, when market failures occur simultaneously on Chinese and Western lands, their manifestations also differ significantly.

1. The failure of the Chinese market is characterized by the prominent administrative monopoly and the lack of competition.

Administrative monopoly refers to a type of exclusive control in the process of economic marketization in China, in which enterprises and administrative agencies are united to form administrative barriers using administrative power. Judging from the current situation in China, there are mainly two forms of administrative monopoly in China, namely, local monopoly and industry monopoly. Due to the excessive involvement of administrative power, social resources are often controlled by administrative power, and production and business operators who are excluded from interests compete with it. Areas with severe administrative monopolies strictly control the sales of foreign products and control prices. Local subsidies are applied to local products. Discriminatory restrictions on high-quality and technical inspections are imposed on foreign products. At the same time, labor is strictly controlled Inflow and outflow.

A serious consequence of the strict management of the market order is that the formation of China's market competition mechanism is hindered. At present, China's competition mechanism has not yet formed: Inter-regional and inter-industry intervention is very common, and the domestic market is basically semi-closed, which is far from the requirements of a market economy. Industries and departments in some regions often only pay attention to protecting the interests of their own regions. It must be acknowledged that the protection and support of the interests of the local sector has a considerable social ideological basis, and certain benefits can be received in a short time. In the long run, it is bound to hinder the formation and development of the entire market mechanism.

Market failure

2. Western market failures are mostly manifested as economic monopolies and free monopolies

Western monopoly forms are mainly economic monopoly and free monopoly, while administrative monopoly is relatively weak. This is an important difference between China and the West in terms of monopoly form.

Economic monopoly refers to the exclusive control of market formation by economic entities using market barriers. Economic monopoly is a more common form of monopoly. Since the 19th century, capitalist industry and commerce has developed rapidly, the market has played an active regulatory role, and the choice of survival of the fittest has been selected. Some producers have been squeezed out, while others have continued to grow. With the expansion of capitalism, some economic entities have dominated the market, manipulated and controlled the market, and achieved exclusive control over the production, price, and quantity of commodities.

Natural monopoly refers to a monopoly or oligopoly formed due to technical reasons such as scarcity of resources and economies of scale and scope, or special economic reasons. [6] Natural monopoly mainly exists in the tertiary industry, which has appeared in the history of western countries. For example, since the 1970s, the United States, Britain and other countries have implemented deregulation regulations on natural monopoly industries such as communications, transportation, finance and energy. Natural monopolies are generally excluded from application in antitrust laws.