There are plenty of situations where the standard capitalist open market model works just fine - prices of things are driven by demand and supply, customers pay tolerable prices, or accept less comfortable ones if their need is more acute, competition brings about an entirely healthy and vibrant world in which everyone gets more or less what they need.
But I think there are also situations where the entirely normal grunt and shove of a free market would introduce intolerable risks at the ground level - for example, Air Traffic Control - if a number of competing, overlapping air traffic control authorities existed, and pilots had to shop around for the one whose bid looked best, while they were also trying to safely fly a plane, I’m pretty sure there could be some undesirable outcomes that we couldn’t just shrug off.
That may seem a bit of a ridiculous example, but I hope it illustrates my question. I don’t think this is about externalities - this is about markets that are too sensitive, at the low level, to be able to tolerate the normal fluctuations and turbulence that are inherent to a healthy competive market, and therefore require some kind of regulation, control or restraint. Is there a generic term for these scenarios?
Utilities? (as in: the electric company, or the gas company)
Perhaps is other posters contribute examples of this sort of thing, a name for them will emerge. My first thought was that the OP is asking about products which are so quality-sensitive that typical market forces would result in products which are unacceptably low in quality, while the public thinks that they are acceptable. But that is clearly wrong, demonstrated by the example of the pharmaceutical industry, which is subject to supply-and-demand, while government inspectors (supposedly) insure the quality. The same goes for the milk and meat and other foods that we buy.
That’s why my focus is on the utility companies. The problem there is not that competition might result in poor quality, but that the distribution channels are just too narrow for more than one supplier.
strategic commodities (like a country fully dependent on its mineral deposits or agricultural produce,) weapons technology, scarce basic resources like water, primary and secondary education, media (hehehe…)
I’m not thinking so much of narrow markets - your first thought was pretty well aligned with the question - I’m thinking of markets where, as you say, quality would vary outside of tolerance (and with outcomes worse than the low-quality suppliers losing their market share - i.e. people dying en masse), or just markets where the jostle and bustle of competition would introduce too much noise into a delicate or risky environment.
Yes, market failure is the best term. In practice a lot of times a market failure seems to be used when the implication is that it’s a failure that needs to be fixed. But that’s not necessarily the case, and Economics is happy to acknowledge that there are many instances where the market is not the efficient or ideal solution.
"Switch your Driver’s License and Vehicle Registration to RocketMVA today! We don’t require emissions inspections and our post-DUI license suspension periods are 30% less than SearsDMV and 50% less than the State DMV! Bring this coupon and get an extra five points on your next knowledge or vision exam!
Except licensing isn’t a market. There are driving schools, though, and in my state the school can be licensed to conduct the state driving test (i.e., the actual driving portion).
Well, it isn’t a market because the states don’t want what would happen if it was. The purpose of the DMV is more about safety and punishment of offenders than it is about making a profit for the state. If it was, then penalties for unsafe cars or traffic offenses would go down. “Take these points off my license or else I’m switching my account to Joe’s Discount DMV on First Street!”
I don’t believe it is valid to equate the government regulation of a privilege to a market system. Since the license carries with it a proof of competency and is deemed non-transferable then it doesn’t fit into any kind of market system.
“I won’t hire you as a truck driver because your CDL is from UDrive, Inc, which according to Managers’ Quarterly has consistently low standards and 50% of the DUI convictions are against UDrive DL holders.”
It might work on private roads though.
“Take the next left.”
“I can’t, it’s a SearsMVA road, and you can only drive on it if you have a SearsMVA Driver’s License, or else you get arrested for trespassing.”
“Why not apply for one?”
“Well, I have 2 DUI’s and SearsMVA advertises itself as a SAFE driving experience. It’s kinda like applying for an American Express after a bankruptcy- you can’t do it.”
Many people, myself included, would disagree with this characterization. There are no flavours of capitalism, whether they have no or some or near-total control by the state, in which there does not exist poverty, alienation, exploitation, and disenfranchisement. Therefore the scenario you’re describing (that is, one in which an open market model wouldn’t work) is called simply “human society”.
I see your point. Under the right conditions you could take any object, service or privilege and use an open market system to distribute it. So your example meets the terms of the OP.
But efficiency and practicality rule out that environment. It’s the reason why some systems (Highways) are run almost exclusively by government systems and regulated utilities alone provide distribution services for some products. The alternative is multiply redundant road systems, gas pipes, electric lines etc. The clutter and waste caused by an open market system is a much greater cost than a regulated single source option.