As anyone who knows the slightest thing about market theory will be aware, it suggests there are some quite strict conditions that must be met if markets are to be what an economist might term efficient in allocating resources appropriately. These conditions include the absence of large market players who can dominate sectors and set prices; the availability of consistent and accurate information on the activity of all market participants to all who wish to engage in the market; access to capital for all who want to supply so that they have the chance of doing so and, of course, an absence of systemic bias that might favour any one participant over another, so giving them an unfair advantage.
Most who know anything about market theory say that’s the model at the limit. Much of the rest of economics is about how close is the real world to that model? Further, how close does it have to be for market resource allocation to be efficient?
The answers being not very and very little.
That’s why we do indeed say that the big four UK supermarkets – used to at least – have pricing power and yet the shops are full while Venezuela starves. We also go on to say that the cure to those ills like pricing power is more markets – Aldi and Lidl come to mind as the latest competitors providing that. We even see that decline in supermarket pricing power in their annual results.
BTW, Hayek also proved that perfect information isn’t possible to collect. Which is the other reason we use markets, for planning is even worse in the absence of perfect information.
If only the Senior Lecturer at Islington Technical College had paid attention in his introductory economics lectures.