Assignment on Market Imperfections in Bangladesh & Its Solution (Based on the study of Marketing Management). It prepared by Md. Abdur Rakib...
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Assignment On Market Imperfections in Bangladesh & Its Solution (Based on the study of Marketing Management )
Transcript
1. AssignmentOnMarket Imperfections in Bangladesh & Its
Solution(Based on the study of Marketing Management)
2. 1AssignmentOnMarketing Management (Course: 511)Topic: Market
Imperfections in Bangladesh & Its SolutionPrepared for:Dr.
Belayet HossainProfessorDepartment of MarketingFaculty of Business
of StudiesUniversity of DhakaPrepared by:Md. Abdur RakibRoll No:
041Section: ADepartment of Marketing (14th)University of DhakaDate
of Submission: 26thNovember, 2012 eng.
3. 2What are the major causes of market imperfections in
Bangladesh? How canthis be solved? Apply your judgments.Market
Imperfections:Market imperfection is a concept describing when the
allocation of goods and services by a freemarket is not efficient.
That is, there exists another conceivable outcome where a
marketparticipant may be made better-off without making someone
else worse-off. Marketimperfections can be viewed as scenarios
where individuals pursuit of pure self-interest leads toresults
that are not efficient that can be improved upon from the societal
point-of-view. It is thefailure of a market to provide the socially
optimal output. The entire market system provides asub-optimal mix
of goods and services. The information is not quickly disclosed to
allparticipants in it and where the matching of buyers and sellers
isnt immediate.An understanding of market imperfections and its
sources is important because these are thecases under which
government intervention into the market is potentially justified on
economicgroundsMarket imperfections are often associated with
information asymmetries, non-competitivemarkets, principalagent
problems, externalities, or public goods. The existence of such
situationis often used as a justification for government
intervention in a particular market. However, sometypes of
government policy interventions, such as taxes, subsidies,
bailouts, wage and pricecontrols, and regulations, including
attempts to correct market problems, may also lead to aninefficient
allocation of resources, sometimes called government failure. Thus,
there issometimes a choice between imperfect outcomes, i.e.
imperfect market outcomes with or withoutgovernment
interventions.
4. 3Market Imperfections in Bangladesh:Imperfections in rural
labor markets, particularly interlocking of labor markets with
land, credit,and product markets, has traditionally been viewed as
a crucial constraint on income andemployment of rural labor
households. For least developed economies like
Bangladesh,challenges to domestic policies arise from multilateral,
regional and bilateral ... The globalmarket imperfection further
skews the trade gains on account of supply side
constraints,resources and so on. Credit market imperfections, the
degree of imperfection has declined overtime as rural credit has
been made more readily. Growth patterns for children in
landlesshouseholds were influenced by credit market imperfections.
Labour market imperfections needto be seen in the context of
product market imperfections. In country like Bangladesh
structuralweaknesses and market imperfections inhibit the free play
of market forces.
5. 4Major Causes of Market Imperfections:1. Monopoly
Power:Monopoly results in a smaller output and a higher price when
compared to perfectcompetition. Less than the socially optimal
output is provided. The deadweight or social lossis due to
monopoly. This deadweight loss is simply the excess of value over
cost for thoseunits that would be produced under perfect
competition but are not produced because ofmonopoly. Bangladesh has
not only lost their monopoly in the world market but are alsofacing
strenuous situation. Moreover, the problems revolving around the
jute trade isassuming alarming proportions for Bangladesh in the
recent years. There have been aproblem related to raw materials,
finance and product demand/market. Due to poortransportation or
monopoly distribution, resources are unavailable or
inaccessible.Causes
ofMarketImperfectionsMonopolyPowerExternalitiesPublicGoodsInequityDeregulationGlobalizationInformationAsymmetries
6. 5Traditionally, imports of food grains in Bangladesh have
been the domain of publicmonopoly.2. Externalities:An externality
is produced when all of benefits or costs of an economic decision
do notaccrue to the decision maker. Someone makes a decision and
someone external to thatdecision is affected. An externality can be
positive so that someone external to the decisionbenefits or an
externality can be negative so that a cost is imposed on someone
who is not aparty to that decision.External costs in consumption
generate passive results. External cost in production such
asenvironmental pollution in Bangladesh is generated mostly in the
production of many goods.3. Public Goods:The distinguishing
characteristic of a public good is not the sector that provides the
good.Some public goods are provided by the private sector and many
private goods are providedby the public sector. National defense
services of security, TV or radio broadcast, highways,libraries and
parks are example of public goods.Considering Bangladeshs history
of tumultuous politics, the country is gradually improvingin terms
of political stability and governance. Unfortunately, development
has not beenstable, mainly due to political will and commitment.
Democracy and governance inBangladesh, still plagued by violence,
corruption, outdated laws, abuse of human rights,absence of rule of
law, non-accountability, and heavy politicization of all
governmentinstitutions including the judicial system. It is
observed that we need strong politicalleadership with commitment to
fight against deep rooted corruption, non-accountability,
non-transparency and inefficiency is imperative for establishing
good governance and to ensuresustainable development. Keeping all
these issues in consideration, this research paperdiscusses
governance and good governance related issues and sustainable
development. Italso provides a set of recommendations based on this
analysis. The study is explanatory innature which is based on
extensive literature review and secondary sources.
7. 64. Inequity:If the underlying income distribution is
inequitable then the market distribution of goods andservices will
also be inequitable.Regional inequity is a growing concern in
Bangladesh. Bangladesh during the pre-independence period
experienced serious regional inequity. Policy actions to address
regionalinequity require information about the nature, extent and
trends in regional inequality. Anattempt is made in this paper to
analyze regional inequality in Bangladesh. Regional inequitymay be
analyzed on issues related to growth, income inequity and
poverty.There is variation among districts in terms of growth in
agriculture and total GDP. Resultsindicate that level of
agricultural growth and share of non-farm household in the district
havesignificant contribution to the overall growth of the district
overall growth of the economy ofBangladesh depends to a large
extent on the performance of its agriculture sector.Agricultural
growth depends on the growth rates of its subsectors. Growth rates
in servicesector of the district also have positive and significant
effect on the level of agriculturalgrowth. Human Poverty Index
(HPI) has significant negative impact on agricultural
growthindicating that districts with high human poverty (in other
words low human capital)achieved lower level of agricultural
growth.Share of income from agriculture to the total income has
declined over time but share ofbusiness and commerce and
professional wages and salary has increased (Table 22). In
ruralareas also share of income from agriculture declined and share
of non-farm income sourceshas increased over time.Higher the level
of initial income, higher the level of current per capita income
and higherGDP growth, higher per capita income in the district.
Proportion of landless household had asignificant negative effect
on per capita income level. This is quite obvious due to the
factthat districts with large number of families (with most
production income generating asses,land) had lower level of per
capita income. One implication of these findings is that to
raisethe average income level of this negative and particularly for
the landless community.Government must take actions so that less
endowed people can have greater access to newproductive assets such
as solar dryer, power tiller, power pump, harvester, thresher,
etc.
8. 7Bangladesh would require allocation for development
projects so that less fortunate caneffectively take advantage of
those. The issues of access to new productive assets are
alsoimportant to this end.5. Deregulation:We have few deregulated
industries such as a few financial sectors, electric utilities etc.
Theimpact of trade liberalization and of market deregulation in
general, on the performance ofagriculture remains contentious and
empirical issue in the literature. Due to de regulationthere is an
outcome of growing concerns around the world about the prevailing
inefficienciesin agriculture and agribusiness and the need to
improve productivity, profitability, andfinancial sustainability of
agriculture and agribusiness by privatizing state- owned
enterprisesand eliminating unnecessary government regulations.6.
Globalization:The forces of globalization have produced rapid
social change, often marked by more inter-and intra-regional
disparity, environmental and ecological crisis, social
disintegration,violence and conflict. In other words, for many poor
countries the forces of globalizationhave produced enormous social
suffering. Other local factors, such as, population
increase,further aggravate the magnitude of social suffering. In
the case of Bangladesh, the problemsof landlessness, impoverishment
and consequent rural out-migration are compounded byenvironmental
hazards as well as environmental degradation caused by economic and
otherdevelopment activities. Natural hazard induced population
displacement is endemic inBangladesh. One specific and central
impact of globalization is the massive turn to a wage-labour
economy.Trade liberalization and privatization created social
insecurity and aggravating,unemployment, underemployment. Most of
the privatization and closure of industriesresulted in huge
retrenchment. Fall in the aggregate demand for labour has
accelerateddeclination of wage. Real wage declined due inflation
and currency market deregulationit is difficult for them to keep up
the competitive advantages compared to imported goods.Inequalities
increased in the country during the period of rapid
globalization.
9. 87. Information Asymmetries:Information asymmetries are
important in theory but difficult to identify in practice.
Weestimate the empirical importance of adverse selection and moral
hazard in a consumer creditmarket using a new field experiment
methodology derived from theoretical models. adynamic repayment
incentive that extends preferential pricing on future loans to
borrowerswho remain in good standing. These three randomizations,
combined with completeknowledge of the Lenders information set,
permit identification of specific types of privateinformation
problems.
10. 9Solutions to Market Imperfections:1. Monopoly
Power:Monopoly power can be solved the following ways. Making the
monopoly more competitive antitrust policy: The antitrust laws
allow thegovernment to prevent monopoly by preventing
anticompetitive mergers. The lawsrestrict behavior that is deemed
to be anticompetitive. Regulating the behavior of the monopoly:
Price regulation is commonly used to addressthe problem of natural
monopolies such as water and electric companies. Public ownership:
The incentive structure can impacted by public ownership2.
Externalities:The problems of externalities can be resolved the
following ways: More completely defined property rights: In the
case of an external cost, imposing a perunit tax equal to the
amount of the externality will correct the problem. Subsidies or
taxes: Rather than subsidizing the consumer, a subsidy to the
producerwould work. A tax on either side of the market will work.3.
Public Goods:The market can sometimes solve the free rider problem,
allowing market provision of thepure public good. But the good is
likely to be under provided often no provision would occur.In the
case of an excludable public good, those who dont contribute will
generally beexcluded if the good is provided by the private sector.
Because the marginal social cost ofextending the benefits to
another person is zero, this is inefficient.4. Inequity:The attempt
to address inequity through the market system may cause more
problems than itsolves. The government must now address the
surplus. An equitable distribution of resourcesmay require more
than income transfers. Merit Good- a good or service to which
society
11. 10deems everyone is entitled in some amount. Government
intervention may be required toensure that these standards are met.
Following are some solutions: Analyze the nature, extent and trends
in growth, poverty and income inequality inBangladesh. Examining
& exercising relationship between economic growth, income
inequality andpoverty in Bangladesh. Provide some policy
suggestions to foster growth, reduce income inequality and
povertyin Bangladesh.5. Deregulation:The efficiency differentials
are largely explained by farm size, infrastructure, households
off-farm income and the reduction of government anti-agricultural
bias in relation to trade anddomestic policies. The implication of
these results suggests the need for further policy reformto augment
productive efficiency.6. Globalization:Voice of the common workers,
collective awareness and participatory management of tradeunions at
various levels are the three main processes for the improvement of
trade uniongovernance. The existing practice of centralized
governance of trade unions has largelycontributed to the major
failures in the labour processes in Bangladesh. The
Governmentshould encourage and promote the conditions for social
dialogue at the enterprise level as anincreasingly more important
part of a dynamic industrial relation system. Increasing mobilityof
goods and capital allows such obstacles to be readily circumvented,
thereby prompting thetrade union movement to adopt a global
approach.7. Information Asymmetries:Theoretical models of private
information, and thereby permits identification of
unobservableselection and moral hazard effects. The improvements of
telecommunication industry canhave a great impact to resolve the
information asymmetries.
12. 11Conclusion:In Bangladesh, the increase in domestic prices
was substantial, but still less than the increase inworld prices;
the explanation here is that net exports for Bangladesh are bound
at zero due tomarket imperfections. Deregulations, privations,
monopolistic situation, poverty, unequaldistribution of income etc.
are influencing the market situations a lot. Besides, political
unrest,globalization, rapid information flow are also having a
great impact on its economy and thuscreate market imperfections.
Government as well as the firms must come forward to solve
thisproblem as quickly as possible to develop our economy.
Government intervention is itself costly& may not be worth it.
The solution may be politically infeasible. However, the solution
must beimplanted to have an impact.