My go to examples of “characteristic behaviors of markets that are undesirable in some sense, and can be corrected by the application of an external law” are markets that would naturally become monopolies. E.g. water and electricity. I’m not an economist and haven’t done much/any research on this, but I imagine that without regulation, you’d get big private monopolies, which would then be able to charge way more than would be socially efficient. The free market fails here because the barriers to entry are way higher than in other markets.
This seems intuitively likely, but, on the other hand, we thought the same thing about telecommunications, and our early move to nationalize that under the Bell corporation was wholeheartedly disastrous, and continues to haunt us to this day. I… honestly don’t know. I suspect that some level of intervention is optimal here, but I’m not sure exactly how much.
In the case of water, if we were required to move water in tanks rather than pipes, water would be more expensive and traffic would be worse, but we’d also probably see far less wasted water and more water conservation.
Nationalization is not the only possible government intervention—antitrust regulations have different down-sides but they do mainly work by preserving the market rather than destroying it.
It is not possible to create “big private monopolies” in a free market. That is simply a strawman. Monopolies are only possible with government sanction. Regulation is the tool by which this outcome is achieved.
It’s entirely possible to create a big private monopoly in a free market, for example, through first mover advantage, mergers and buying out competition.
Standard Oil, for instance, established an effective monopoly in a highly laissez-faire market. The means by which they did so were not necessarily unethical or illegitimate, but this does not change the fact that having achieved this state, they were in a position to prevent any other companies from reaching a point where they could offer meaningful economic competition, and could enforce exploitative profit margins if they so chose.
My go to examples of “characteristic behaviors of markets that are undesirable in some sense, and can be corrected by the application of an external law” are markets that would naturally become monopolies. E.g. water and electricity. I’m not an economist and haven’t done much/any research on this, but I imagine that without regulation, you’d get big private monopolies, which would then be able to charge way more than would be socially efficient. The free market fails here because the barriers to entry are way higher than in other markets.
This seems intuitively likely, but, on the other hand, we thought the same thing about telecommunications, and our early move to nationalize that under the Bell corporation was wholeheartedly disastrous, and continues to haunt us to this day. I… honestly don’t know. I suspect that some level of intervention is optimal here, but I’m not sure exactly how much.
In the case of water, if we were required to move water in tanks rather than pipes, water would be more expensive and traffic would be worse, but we’d also probably see far less wasted water and more water conservation.
Nationalization is not the only possible government intervention—antitrust regulations have different down-sides but they do mainly work by preserving the market rather than destroying it.
It is not possible to create “big private monopolies” in a free market. That is simply a strawman. Monopolies are only possible with government sanction. Regulation is the tool by which this outcome is achieved.
It’s entirely possible to create a big private monopoly in a free market, for example, through first mover advantage, mergers and buying out competition.
Standard Oil, for instance, established an effective monopoly in a highly laissez-faire market. The means by which they did so were not necessarily unethical or illegitimate, but this does not change the fact that having achieved this state, they were in a position to prevent any other companies from reaching a point where they could offer meaningful economic competition, and could enforce exploitative profit margins if they so chose.