Definition of Market Failure

Definition: A situation, usually discussed in a model not in the real world, in which the behavior of optimizing agents in a market would not produce a Pareto optimal allocation. Sources of market failures:

• Monopoly. Monopoly or oligopoly producers have incentives to underproduce and to price above marginal cost, which then gives consumers incentives to buy less than the Pareto optimal allocation.
• Externalities

Terms related to Market Failure:

• Free Market Economy
• Market
• Externality

About.Com Resources on Market Failure:

Writing a Term Paper? Here are a few starting points for research on Market Failure:

Journal Articles on Market Failure:

• The Vertical Integration of Production: Market Failure Considerations
• The Anatomy of Market Failure
• The selection principle and market failure in systems competition