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Market structure can be determined by measuring the degree of suppliers' market concentration, which in turn reveals the nature of market competition. The degree of market power refers to firms' ability to affect the price of a good and thus, raise the market price of the good or service above marginal cost (MC).
Despite the latest ongoing innovation in financial and insurance markets, markets remain incomplete. While several contingent claims are traded routinely against many states such as insurance policies, futures, financial options, among others, the set of outcomes is far greater than the set of claims.
Download as PDF; Printable version; In other projects ... Capital market imperfections; CC–PP game; Coase theorem; Coercive monopoly; Common-pool resource ...
Capital market shares some of the "imperfections" of the labor market discussed above: long term relationships between banks and borrowers act like the long term employment relationship between an employer and their workers. Like layoffs in the labor market, there is credit rationing in the financial market. Also, a typical loan contract is ...
In effect, they internalise the market in knowledge within the firm. The theory claims the internalization leads to larger, more multinational enterprises, because knowledge is a public good . [ 4 ] Development of a new technology is concentrated within the firm and the knowledge then transferred to other facilities.
Another reason for capital market imperfections associated with limited commitment is the ability of the borrower to renegotiate the terms of the contract ex post. Even though the contract is signed as a secured loan , because of the enforcement costs, the lender never gets the full payment in case of default.
Different economists have different views about what events are the sources of market failure. Mainstream economic analysis widely accepts that a market failure (relative to Pareto efficiency) can occur for three main reasons: if the market is "monopolised" or a small group of businesses hold significant market power, if production of the good or service results in an externality (external ...
The more interesting case, that of equilibrium credit rationing, is the result of structural features of the market (in particular, adverse selection), and will characterise long run market outcomes (barring some technological breakthrough) and is analysed below.