What is market failure?

What are the contributing factors

for market failure in the health care sector? How can the
market failure in healthcare sector be addressed?

The healthcare system is the heart of our very well-being and living. If it
collapses or even if the system is disrupted, it will affect the whole
market and the overall sustainability of our economic system.

Definition
 As you might know, market failure occurs when there is an inefficient
distribution of goods and services in the market.

 The healthcare market has always been considered an imperfect

market. This is due to the availability of limited information and
resources.
 A good example of the limited information is the current situation
with vaccines:

Example

Vaccinations against Covid protect individuals against the virus and

reduce the chances of one person infecting others. However, the vaccine
hasn’t been understood and accepted by an important percentage of the
population. This results in lesser consumption as compared to the actual
need or supply in society. This results in Market Failure.

Market failure in healthcare: economics

We know the market runs on the concepts of demand and supply. The
healthcare market is also about the demand and supply where consumers
(patients) demand, and producers (doctors, pharmacists, medical research
teams, nurses. etc.) supply.

However, the healthcare market has other features and agents that make it
more complicated and that can cause a market failure.
Causes of market failure in healthcare
The factors that can result in market failure are positive and
negative externalities, monopoly power abuse, oversupply of demerit
goods and under supply merit goods, and lack of public goods.

Healthcare also requires proper investments for research and a proper

allocation of resources as it is considered a scarce service worldwide.
Scarcity in the availability of healthcare resources, uneven distribution of
knowledge about diseases, ill health, and medicines also result in market
failure in healthcare.

Types of market failure in healthcare

 Market failure in healthcare, like all market failures has four types:

 Under-provision of merit goods and services -Imperfect information

about the goods and services. -Externalities -Market Power

Market failure in Healthcare

 The healthcare market has always been considered an imperfect
market. This is due to the availability of limited information and
resources.
 Like any market, the healthcare market has demand and supply.
Consumers (patients) demand and producers (doctors, pharmacists,
medical research teams, nurses, etc.) supply.
 Besides demand and supply, other features of healthcare make the
market prone to failure.
Market failure in healthcare, like all market failure, has four types:

1. Under provision of merit goods and services.

2. Imperfect information about the goods and services.
3. Externalities .
4. Market power.
 Scarcity in the availability of healthcare resources, uneven
distribution of knowledge about diseases, ill health, and medicines
result in market failure in healthcare.