I'm looking for a complete run down of all different kinds of market failures;

Wikipedia has a list but I'm not sure if there might some obscure kinds of market failures that Wikipedia is missing. Are there types of Market failures that are not mentioned in this the standard textbooks/wikipedia?

Wikipedia: "Market failures are often associated with time-inconsistent preferences, information asymmetries, non-competitive markets, principal–agent problems, externalities, or public goods."


2 Answers 2


Market failures often arise due to deviations from the classical assumptions of economics (e.g. Perfect Competition, Perfect Rationality, Perfect Information, Unbounded Computational Capacity, ...etc). There are lists of well-documented and studied market failures and the factors driving them (monopoly is sometimes considered a case of market failure); however, there cannot be an exhaustive list as that would be equivalent to placing a bound on the number of ways people can behave unexpectedly

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    $\begingroup$ Excuse me but this seems to me to be an inane criticism. Naturally not every instance of market failure can be listed; but presumably economists have abstracted from the particular and came up with a number of categories that includes all these known particular instances. In fact your own post says so. 'the number of ways people can behave unexpectedly' seems to be encompassed in failures of 'Perfect Competittion, Perfect Rationality, Perfect Information, Unbounded Computational Capacity'.' $\endgroup$
    – Lee Wang
    Commented Nov 19, 2016 at 10:39

There is a huge amount of misinformation about market failures online, even on the wikipedia article. Many of the things people often list as market failure are very much not market failures. In particular, tvbc is completely wrong (but is in good company of many others who parrot the same wrong information) that deviation from perfect competition are market failures.

There are only 3 broad types of market failure:

  1. Externalities
  2. Anti-competitive markets (eg monopolies)
  3. Suboptimal initial resource allocation

I explain in the article why these are the only 3 possible market failures.

There are a number of things that some claim are market failures, but are not. Examples include:

  • information asymmetry
  • time inconsistent preference
  • "missing" markets
  • conflict of interest
  • factor immobility
  • "internalities" like smoking

Cases of these things do indeed cause inefficiencies in comparison to the ideal of perfect competition, not inefficiencies caused by the failure of the market to incorrectly evaluate prices. For example, information has a cost, and when that cost is considered, it becomes clear that markets usually rationally and efficiently decide when to remain ignorant (when to do so is always when the cost of escaping ignorance isn't worth the benefit).

There are also a number of things that are market failures and fall under one of the 3 broad categories I listed above:

  • public goods and public "bads"
  • merit and demerit goods
  • indivisible property
  • common property
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    $\begingroup$ (-1) I dislike both the promotional aspect of this answer and that it misses information asymmetry completely. $\endgroup$
    – Giskard
    Commented Sep 30, 2023 at 7:55
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    $\begingroup$ Information asymmetry isn't a market failure unless its fraud. Its absurd to dislike an answer because someone has written specifically about this. $\endgroup$
    – B T
    Commented Oct 3, 2023 at 3:13
  • $\begingroup$ @BT You have not tagged me, so I did not see your comment. Governology was active for 1 day, on which they posted a link to their substack in answers to 10 questions. I find it to be aggressive advertising. On information asymmetry not causing market failure, I may post it as a question. $\endgroup$
    – Giskard
    Commented Oct 9, 2023 at 7:56
  • $\begingroup$ I'm sorry, is it against some stack exchange policy to reference your own work in answers? @Giskard $\endgroup$ Commented Oct 18, 2023 at 3:15
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    $\begingroup$ Thanks for the links, I'll keep that in mind for the future. $\endgroup$ Commented Oct 19, 2023 at 18:14

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