Assignment on Market Imperfections in Bangladesh & Its Solution (Based on the study of Marketing Management). It prepared by Md. Abdur Rakib...

1. Assignment
On
Market Imperfections in Bangladesh & Its Solution
(Based on the study of Marketing Management)

2. 1
Assignment
On
Marketing Management (Course: 511)
Topic: Market Imperfections in Bangladesh & Its Solution
Prepared for:
Dr. Belayet Hossain
Professor
Department of Marketing
Faculty of Business of Studies
University of Dhaka
Prepared by:
Md. Abdur Rakib
Roll No: 041
Section: A
Department of Marketing (14th
)
University of Dhaka
Date of Submission: 26th
November, 2012 eng.

3. 2
What are the major causes of market imperfections in Bangladesh? How can
this be solved? Apply your judgments.
Market Imperfections:
Market imperfection is a concept describing when the allocation of goods and services by a free
market is not efficient. That is, there exists another conceivable outcome where a market
participant may be made better-off without making someone else worse-off. Market
imperfections can be viewed as scenarios where individuals' pursuit of pure self-interest leads to
results that are not efficient – that can be improved upon from the societal point-of-view. It is the
failure of a market to provide the socially optimal output. The entire market system provides a
sub-optimal mix of goods and services. The information is not quickly disclosed to all
participants in it and where the matching of buyers and sellers isn't immediate.
An understanding of market imperfections and its sources is important because these are the
cases under which government intervention into the market is potentially justified on economic
grounds
Market imperfections are often associated with information asymmetries, non-competitive
markets, principal–agent problems, externalities, or public goods. The existence of such situation
is often used as a justification for government intervention in a particular market. However, some
types of government policy interventions, such as taxes, subsidies, bailouts, wage and price
controls, and regulations, including attempts to correct market problems, may also lead to an
inefficient allocation of resources, sometimes called government failure. Thus, there is
sometimes a choice between imperfect outcomes, i.e. imperfect market outcomes with or without
government interventions.

4. 3
Market 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 and
employment of rural labor households. For least developed economies like Bangladesh,
challenges to domestic policies arise from multilateral, regional and bilateral ... The global
market 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 over
time as rural credit has been made more readily. Growth patterns for children in landless
households were influenced by credit market imperfections. Labour market imperfections need
to be seen in the context of product market imperfections. In country like Bangladesh structural
weaknesses and market imperfections inhibit the free play of market forces.

5. 4
Major Causes of Market Imperfections:
1. Monopoly Power:
Monopoly results in a smaller output and a higher price when compared to perfect
competition. Less than the socially optimal output is provided. The deadweight or social loss
is due to monopoly. This deadweight loss is simply the excess of value over cost for those
units that would be produced under perfect competition but are not produced because of
monopoly. Bangladesh has not only lost their monopoly in the world market but are also
facing strenuous situation. Moreover, the problems revolving around the jute trade is
assuming alarming proportions for Bangladesh in the recent years. There have been a
problem related to raw materials, finance and product demand/market. Due to poor
transportation or monopoly distribution, resources are unavailable or inaccessible.
Causes of
Market
Imperfections
Monopoly
Power
Externalities
Public
Goods
InequityDeregulation
Globalization
Information
Asymmetries

6. 5
Traditionally, imports of food grains in Bangladesh have been the domain of public
monopoly.
2. Externalities:
An externality is produced when all of benefits or costs of an economic decision do not
accrue to the decision maker. Someone makes a decision and someone external to that
decision is affected. An externality can be positive so that someone external to the decision
benefits or an externality can be negative so that a cost is imposed on someone who is not a
party to that decision.
External costs in consumption generate passive results. External cost in production such as
environmental 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 provided
by the public sector. National defense services of security, TV or radio broadcast, highways,
libraries and parks are example of public goods.
Considering Bangladesh's history of tumultuous politics, the country is gradually improving
in terms of political stability and governance. Unfortunately, development has not been
stable, mainly due to political will and commitment. Democracy and governance in
Bangladesh, still plagued by violence, corruption, outdated laws, abuse of human rights,
absence of rule of law, non-accountability, and heavy politicization of all government
institutions including the judicial system. It is observed that we need strong political
leadership with commitment to fight against deep rooted corruption, non-accountability, non-
transparency and inefficiency is imperative for establishing good governance and to ensure
sustainable development. Keeping all these issues in consideration, this research paper
discusses governance and good governance related issues and sustainable development. It
also provides a set of recommendations based on this analysis. The study is explanatory in
nature which is based on extensive literature review and secondary sources.

7. 6
4. Inequity:
If the underlying income distribution is inequitable then the market distribution of goods and
services 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 regional
inequity require information about the nature, extent and trends in regional inequality. An
attempt is made in this paper to analyze regional inequality in Bangladesh. Regional inequity
may 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. Results
indicate that level of agricultural growth and share of non-farm household in the district have
significant contribution to the overall growth of the district overall growth of the economy of
Bangladesh 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 service
sector of the district also have positive and significant effect on the level of agricultural
growth. Human Poverty Index (HPI) has significant negative impact on agricultural growth
indicating 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 of
business and commerce and professional wages and salary has increased (Table 22). In rural
areas also share of income from agriculture declined and share of non-farm income sources
has increased over time.
Higher the level of initial income, higher the level of current per capita income and higher
GDP growth, higher per capita income in the district. Proportion of landless household had a
significant negative effect on per capita income level. This is quite obvious due to the fact
that 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 raise
the 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 new
productive assets such as solar dryer, power tiller, power pump, harvester, thresher, etc.

8. 7
Bangladesh would require allocation for development projects so that less fortunate can
effectively take advantage of those. The issues of access to new productive assets are also
important to this end.
5. Deregulation:
We have few deregulated industries such as a few financial sectors, electric utilities etc. The
impact of trade liberalization and of market deregulation in general, on the performance of
agriculture remains contentious and empirical issue in the literature. Due to de regulation
there is an outcome of growing concerns around the world about the prevailing inefficiencies
in agriculture and agribusiness and the need to improve productivity, profitability, and
financial sustainability of agriculture and agribusiness by privatizing state- owned enterprises
and 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 globalization
have produced enormous social suffering. Other local factors, such as, population increase,
further aggravate the magnitude of social suffering. In the case of Bangladesh, the problems
of landlessness, impoverishment and consequent rural out-migration are compounded by
environmental hazards as well as environmental degradation caused by economic and other
development activities. Natural hazard induced population displacement is endemic in
Bangladesh. 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 industries
resulted in huge retrenchment. Fall in the aggregate demand for labour has accelerated
declination of wage. Real wage declined due inflation and currency market deregulation
it 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. 8
7. Information Asymmetries:
Information asymmetries are important in theory but difficult to identify in practice. We
estimate the empirical importance of adverse selection and moral hazard in a consumer credit
market using a new field experiment methodology derived from theoretical models. a
dynamic repayment incentive that extends preferential pricing on future loans to borrowers
who remain in good standing. These three randomizations, combined with complete
knowledge of the Lender's information set, permit identification of specific types of private
information problems.

10. 9
Solutions 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 the
government to prevent monopoly by preventing anticompetitive mergers. The laws
restrict behavior that is deemed to be anticompetitive.
 Regulating the behavior of the monopoly: Price regulation is commonly used to address
the problem of natural monopolies such as water and electric companies.
 Public ownership: The incentive structure can impacted by public ownership
2. 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 per
unit tax equal to the amount of the externality will correct the problem.
 Subsidies or taxes: Rather than subsidizing the consumer, a subsidy to the producer
would 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 the
pure 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 don’t contribute will generally be
excluded if the good is provided by the private sector. Because the marginal social cost of
extending 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 it
solves. The government must now address the surplus. An equitable distribution of resources
may require more than income transfers. Merit Good- a good or service to which society

11. 10
deems everyone is entitled in some amount. Government intervention may be required to
ensure that these standards are met. Following are some solutions:
 Analyze the nature, extent and trends in growth, poverty and income inequality in
Bangladesh.
 Examining & exercising relationship between economic growth, income inequality and
poverty in Bangladesh.
 Provide some policy suggestions to foster growth, reduce income inequality and poverty
in 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 and
domestic policies. The implication of these results suggests the need for further policy reform
to augment productive efficiency.
6. Globalization:
Voice of the common workers, collective awareness and participatory management of trade
unions at various levels are the three main processes for the improvement of trade union
governance. The existing practice of centralized governance of trade unions has largely
contributed to the major failures in the labour processes in Bangladesh. The Government
should encourage and promote the conditions for social dialogue at the enterprise level as an
increasingly more important part of a dynamic industrial relation system. Increasing mobility
of goods and capital allows such obstacles to be readily circumvented, thereby prompting the
trade union movement to adopt a global approach.
7. Information Asymmetries:
Theoretical models of private information, and thereby permits identification of unobservable
selection and moral hazard effects. The improvements of telecommunication industry can
have a great impact to resolve the information asymmetries.

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Conclusion:
In Bangladesh, the increase in domestic prices was substantial, but still less than the increase in
world prices; the explanation here is that net exports for Bangladesh are bound at zero due to
market imperfections. Deregulations, privations, monopolistic situation, poverty, unequal
distribution 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 thus
create market imperfections. Government as well as the firms must come forward to solve this
problem 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 be
implanted to have an impact.