There are three main types of market failure. They are:
- Monopoly. In some cases, one competitor in a market can come to dominate that market completely. In such a case, there is no competition and consumers no longer gain the benefits of a market economy.
- Externalities. These are costs (or benefits) imposed on people who are not party to an economic transaction. The classic example of this is pollution that is caused by a given industry and which affects people not involved in that industry.
- Public goods. Markets fail to provide public goods. These are things like national defense that cannot be provided only to those who pay for them.