Failures and Interventions on Agricultural Markets at the International, National and Regional Scale

Abstract

Gabszewicz and Thisse (2000) summarise the four conditions which have to be met for a market to be competitive:• The number of firms active in the market is sufficient in the sense that the decisions of one firm do not have an influence on the market price (firm size and number )• No barriers exist for new (existing) firms to enter (leave) the market (free entry/exit)• Goods are homogeneous, leading to perfect substitutability between the products provided by two firms active on that market (product homogeneity)• Every participant of the market has all information on the market prices of all goods traded (perfect information) While Arthur C. Pigou did not invent the concept of externalities and market failure, he was the first to formally represent them in an economic model (Groenewegen, 2009;Pigou, 1932). His concept of market failure associated with externalities has been at the core of welfare economics ever since. Pigou assumed perfect competition (Marcuzzo, 2009), so in his view market failure can be found in otherwise perfectly competitive markets.Externalities exist if the production or consumption of a good generates effects tion. This partly depends on the definition of 'failure'. Koester for example, lists redistribution as an additional motivation for policy intervention besides market failure, as mentioned above (Koester, 2011). Pigou's concept of market failure, on the other hand, includes issues of distribution, so a policy that aims for redistribution would be categorized under the umbrella of correcting market failures. This means that the concentration of capital (which may lead to social friction) is also