SMG SI 422 Lecture Notes - Lecture 13: Pharmaceutical Research And Manufacturers Of America, Market Failure, Externality

• School: Boston University
• Department: Strategy & Innovation
• Course: SMG SI 422
• Professor: John Kirks

Document Summary

Market failures is a situation in which the allocation of goods and services is not efficient. It creates opportunities for firms to achieve superior profits. It also creates inefficiencies and circumstances in which consumer welfare is lower than would be achieved in the absence of market failure. An example of negative externality is if a dam was being built that would prevent fish from swimming upst(cid:396)ea(cid:373) whi(cid:272)h will dest(cid:396)oy the fishi(cid:374)g i(cid:374)dust(cid:396)y i(cid:374) the tow(cid:374) upst(cid:396)ea(cid:373). The la(cid:396)gest fi(cid:396)(cid:373)s i(cid:374) a(cid:374) i(cid:374)dust(cid:396)y (cid:272)a(cid:374) (cid:862)sta(cid:272)k(cid:863) sta(cid:374)da(cid:396)d-setting committees to ensure that such committees adopt stands that are consistent with the product they manufacture instead of those that are new from new firms to push out recent entrants. Industry associations have a lot of power and money to impose. Firms can take advantage of negative externalities to attempt to impose higher costs on rivals and potential entrants.