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market failure examples :)
Low cost airlines
– high price discrimination
– derived demand
High street coffee shops
– high non-price competition
– relatively low barriers to entry
– small no. of dominant firms and many other firms
Possible market failure
– monopoly power: it’s an oligopoly with dominant firms (Costa, Starbucks, Caffe Nero)
– negative externality of consumption -> takeaway cups = disposable + hard to recycle =
extra litter which ends up in landfill
intervene or not? if so, how?
– no direct intervention: highly contestable market so abuse of monopoly power is unlikely &
issue with disposable cups lies much broader than coffee shops
– specific tax: on single use items (disposable cups) for all firms using them (coffee,
fast food chains, bakeries) BUT, needs to be large enough to have significant impact
and make consumers think twice
– subsidies on R&D: into alternative sustainable cups
– advertising campaigns: behavioural nudges to take own reusable cups
Streaming services
– small no. of dominant firms
– zero MC of adding a new customer
– non-rivalrous and non-excludable
Possible market failure
– information gap + irrational behaviour: automatic renewal of monthly or annual contracts /
auto play of next episode = binge-watching
– monopoly power: Netflix reduces ability to share passwords
intervene or not? if so, how?
– not necessary: streaming services are price elastic -> not a necessity good/service; plenty
of substitutes in market -> rational consumers will find cheaper alternatives
– regulation: ban autoplay // easier accessibility pause contracts
– provision of information: transparency on price comparison services // requirement
for service providers to show a clock indicating how long consumer has been
watching
Railway network
– overcrowding on many services
– high price discrimination (peak/off-peak // adult fares // concession)
– product differentiation - standard v first class
☕
market failure examples :)
Low cost airlines
– high price discrimination
– derived demand
High street coffee shops
– high non-price competition
– relatively low barriers to entry
– small no. of dominant firms and many other firms
Possible market failure
– monopoly power: it’s an oligopoly with dominant firms (Costa, Starbucks, Caffe Nero)
– negative externality of consumption -> takeaway cups = disposable + hard to recycle =
extra litter which ends up in landfill
intervene or not? if so, how?
– no direct intervention: highly contestable market so abuse of monopoly power is unlikely &
issue with disposable cups lies much broader than coffee shops
– specific tax: on single use items (disposable cups) for all firms using them (coffee,
fast food chains, bakeries) BUT, needs to be large enough to have significant impact
and make consumers think twice
– subsidies on R&D: into alternative sustainable cups
– advertising campaigns: behavioural nudges to take own reusable cups
Streaming services
– small no. of dominant firms
– zero MC of adding a new customer
– non-rivalrous and non-excludable
Possible market failure
– information gap + irrational behaviour: automatic renewal of monthly or annual contracts /
auto play of next episode = binge-watching
– monopoly power: Netflix reduces ability to share passwords
intervene or not? if so, how?
– not necessary: streaming services are price elastic -> not a necessity good/service; plenty
of substitutes in market -> rational consumers will find cheaper alternatives
– regulation: ban autoplay // easier accessibility pause contracts
– provision of information: transparency on price comparison services // requirement
for service providers to show a clock indicating how long consumer has been
watching
Railway network
– overcrowding on many services
– high price discrimination (peak/off-peak // adult fares // concession)
– product differentiation - standard v first class
