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What Is a Missing Market?

By B. Turner
Updated May 16, 2024
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In microeconomics, a missing market is an example of a failure within the economic market. Missing market means that demand for a good or service exists, but there is no available supply of this sought-after product. It may involve a temporary shortage, or can refer to a product that is simply not available anywhere at any time. A missing market can be created by something as simple as a severe storm or drought, or may be attributed to much more complex economic factors.

Microeconomic equilibrium occurs when the demand for goods is equal to supply. A missing market, therefore, is a sign that the market is out of equilibrium. Most of the time, a market that's out of equilibrium will self-correct until demand once again meets supply. For example, if people began to demand yellow balloons, entrepreneurs would spot the potential for profit in the balllon market and start new balloon-producing factories. In the case of a missing market however, suppliers are unable to produce a specific good or service for any number of reasons.

In many cases, this phenomenon is caused by simple demand shifts, or the effects of timing on the market. If suppliers are heavily focused on yellow balloon creation, and customers suddenly develop a desire for red balloons, it may take companies time to find the right red dye and shift production to this new product. This temporary lag in the market represents a missing market. The same kind of shortage could also occur in the coffee market if a severe drought were to occur coffee-growing regions. Demand would be higher than supply, and customers would temporarily be unable to obtain coffee until the drought was resolved.

In other cases, missing markets can be attributed to much more complex factors. One example is the electric car. Customers may wish to purchase these cars, but are hesitant to do so because of a lack of information about their long-term performance, as well as the availability of charging stations. Suppliers, on the other hand, are hesitant to produce these cars because customers are still unsure about the future of these vehicles. This lack of coordination and communication has created a missing market in the car industry.

Sometimes missing markets are simply due to political or legal systems. For example, some consumers wish to buy illegal products like child pornography. Due to strict legal standards and personal morals, the majority of suppliers refuse to produce this good, leading to a missing market. A missing market can also be caused by lack of technology to produce a good, or by a lack of information. For example, people impacted by air and water pollution may demand the service of remediation for this pollution. A missing market exists in this example because of the difficulty in identifying who is responsible for the pollution.

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Discussion Comments

By Terrificli — On May 23, 2014

Child pornography? Wow. How about an example of an illegal product that's less disgusting? Cuban cigars are a good example. Those are illegal in the U.S. because of a boycott instead of for moral reasons.

Some enterprising types have made good money smuggling those into the country and selling them. That might not be the most upstanding practice, but it does prove one thing about capitalism. If there is a market, people will find ways to reach it.

By Vincenzo — On May 22, 2014

The entrepreneur who can both identify a missing market and supply it stands to make a fortune. Sometimes reaching that market is a race. In the balloon example, the entrepreneur who can first supply the wanted product and at a desirable price will have a leg up on the competition.

The real money is to be made in developing a new product after identifying a missing market for it. Take smart phones, for example. The market was there, but the technology wasn't. Those companies that developed that technology first enjoyed some healthy balance sheets.

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