How Markets Work and Fail, and What to Make of Them

How Markets Work and Fail, and What to Make of Them

New Horizons in Institutional and Evolutionary Economics series

In this thought-provoking book, Bart Nooteboom offers a radical critique of the principal intellectual and moral assumptions underlying economic science, unravelling the notion of markets: how they work and fail, and how they may be redirected to better serve us.

Chapter 5: Hybrids and examples

Subjects: business and management, corporate governance, organisational innovation, organisation studies, economics and finance, evolutionary economics


It is difficult to find an industry where markets are completely free, without regulation or intervention. The very notion of ‘free’ is problematic. Institutions are required not only to correct but also to enable markets. I quote Groenewegen (2006: 4, my translation from the Dutch): Market regulation is as old as markets: markets are continually ordered by private and public parties with the goal of bending processes in a direction they desire. Enterprises affect markets by integration, divestment, alliances, and the like, market structure within which they and their competitors operate. Enterprises create professional organizations with the purpose of affecting the operation of markets by standards and quality certificates. A step further, enterprises try by means of lobbying to set the rules of the competition game to their advantage. . . . Also the demand side of the market is active: Consumer organizations try to make the market more transparent and thereby affect the conduct of consumers. . . . Also public parties, such as government on different levels, try to frame the conduct of parties in such a way that desirable outcomes arise. That can concern rules that guarantee competition in the market, but also more direct intervention, whereby market structure is changed (e.g. by an obligatory splitting up of integrated firms). Unruly markets need to be ruled. In public ordering, there are general regulations, concerning rights of ownership and decision, hiring and firing, employment conditions, financial reporting, advertising, and so on.

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