Editing Market failure (section)

===Failure of competition===
{{main|Market structure|market power|}}
[[Agent (economics)|Agent]]s in a market can gain [[market power]], allowing them to block other mutually beneficial [[gains from trade]] from occurring. This can lead to inefficiency due to [[imperfect competition]], which can take many different forms, such as [[Monopoly|monopolies]],<ref name="demartino01">{{cite book |title=Global Economy, Global Justice |last=DeMartino |first=George |year=2000 |publisher=Routledge |isbn=0415224012 |page=70 |url=https://books.google.com/books?id=bh66WFcdT9sC}}</ref> [[monopsonies]], or [[monopolistic competition]], if the agent does not implement perfect price discrimination.

[[File:NIGU transmision line near Te Kauwhata.JPG|thumb|270px|In small countries like [[New Zealand]], [[electricity transmission]] is a natural monopoly. Due to enormous [[fixed cost]]s and small [[Market (economics)|market size]], one seller can serve the entire market at the downward-sloping section of its [[Cost curve#Short-run average total cost curve (SRATC or SRAC)|average cost curve]], meaning that it will have lower average costs than any potential entrant.]]

It is then a further question about what circumstances allow a monopoly to arise. In some cases, monopolies can maintain themselves where there are "[[barriers to entry]]" that prevent other companies from effectively entering and competing in an industry or market. Or there could exist significant [[first-mover advantage]]s in the market that make it difficult for other firms to compete. Moreover, monopoly can be a result of geographical conditions created by huge distances or isolated locations. This leads to a situation where there are only few communities scattered across a vast territory with only one supplier. Australia is an example that meets this description.<ref name=":0">{{Cite book|title=The political economy of local government|last=Brian.|first=Dollery|date=2001|publisher=Edward Elgar Pub|others=Wallis, Joe (Joe L.)|isbn=1840644516|location=Northampton, MA|oclc=46462759}}</ref> A [[natural monopoly]] is a firm whose per-unit cost decreases as it increases output; in this situation it is most efficient (from a cost perspective) to have only a single producer of a good. Natural monopolies display so-called increasing returns to scale. It means that at all possible outputs [[marginal cost]] needs to be below average cost if average cost is declining. One of the reasons is the existence of fixed costs, which must be paid without considering the amount of output, what results in a state where costs are evenly divided over more units leading to the reduction of cost per unit.<ref>{{Cite web|url=http://www.economicsonline.co.uk/Business_economics/Natural_monopolies.html|title=Natural monopolies exist when one firm dominates an industry|website=www.economicsonline.co.uk|access-date=2018-04-24}}</ref>