Markets need information to work properly

We know that free markets allocate scarce resources efficiently. But the key point here is that they are 'free' with full information on both sides of the exchange.

Lots of things can make markets fail to work properly. Two are monopoly power and a lack of information on one side (asymmetric information). Governments work to try to avoid such issues and the Competition Commission and the Office of Fair Trading (OFT) exist to protect consumers.

The OFT is going to investigate the charges made to holidaymakers to convert pounds into foreign currency. The problems of lack of information and monopoly power exist here. People don't really understand the service they are paying or the costs involved. Also financial institutions are able to lock in their own customers to their services and also exploit the lack of information because of a lack of competition between banks.

The BBC explain the issue and a 'Super complaint' by 'Consumer Focus' to the OFT in the article below.

For Deps consider the information a market needs to work well and reduce the issue of scarcity through specialization and exchange. Grecians should consider this from the point of view of market failure that is involved in F581 and the issue of market failure that will arise in Transport Economics.

The BBC article is here