Market Imperfections

Abstract

I provide a taxonomy of market imperfections built around the economic forces underlying them. Market imperfections affect virtually every transaction in some way, generating costs which interfere with trades that rational individuals make, or would make in the absence of the imperfection. Understanding these costs gives us insight regarding the total costs of transactions, where to place them, or whether to make them at all. Market imperfections also generate profit opportunities for entrepreneurs. Institutions or individuals that can lower costs which trace to imperfections have a competitive advantage and can earn economic rents - at least until competing firms adapt.

Keywords: markets, imperfections, frictions

JEL Classification: A10, D41, G10, G12, G14, G20