For markets to function properly, it is essential that both buyers and sellers have bargaining power, and economists routinely forget to mention this prerequisite. Most importantly, it is vital that both parties can reasonably choose to stay out of the market. For Oasis tickets, this is mostly the case because you can always elect not to go if you think tickets are too expensive. For so many other ‘markets’, however, this is not the case. In housing, health care, and to some extent energy and groceries, it is simply not an option to stay out of the market completely. Therefore in these markets, ‘efficient allocation’ using prices can deviate a lot from ‘fair allocation’, and so there is a role for governments to intervene when necessary. The basic assumptions for markets are simply not met.
For markets to function properly, it is essential that both buyers and sellers have bargaining power, and economists routinely forget to mention this prerequisite. Most importantly, it is vital that both parties can reasonably choose to stay out of the market. For Oasis tickets, this is mostly the case because you can always elect not to go if you think tickets are too expensive. For so many other ‘markets’, however, this is not the case. In housing, health care, and to some extent energy and groceries, it is simply not an option to stay out of the market completely. Therefore in these markets, ‘efficient allocation’ using prices can deviate a lot from ‘fair allocation’, and so there is a role for governments to intervene when necessary. The basic assumptions for markets are simply not met.