Free-market purists view market di♕stortion as any situation in which prices are determined by something other than the unfettered forces of supply and demand. Truly free markets are scarce by that definition. In a more practical sense, market distortion means any interference that significantly affects prices and, in some cases, risk-taking and asset allocation.

Governments are the source of most market distortions including regulation, subsidies, taxes, and tariffs. Central banks have also been accused of distorting markets with monetary policy and 澳洲幸运5官方开奖结果体彩网:asset purchases. Some of the wo🍎rld's biggest corporations have en꧃ough power to distort their markets as well.

Understanding Market Distortion

Most mainstream economists decided long ago that the government's market distortion was necessary and desirable to protect people from the sometimes unforgiving nature of markets. Government regulations intended to protect all market participants' well-being are considered by market purists to be distortions but they're broadly popular.

Regulators must make a tradeoff when deciding to intervene in any given marketplace. Analysts and lawmakers therefore try to seek a balance between the general well-being of all market participants and market efficiency in the formulation of economic policy. An intervention may create market failures but it's intended to enhance a society's welfare.

Government Subsidies

Many governments subsidize the agricultural sector which sometimes makes farming economically feasible, at least for certain products. The 澳洲幸运5官方开奖结果体彩网:subsidies can mean farmers gain artificially high prices for their products, giving them the incentive to produce more than they might otherwise. This type of intervention isn't economically efficient but it helps ensure that a nation will have enough food.

Governments often object to each other's market interventions, however. The U.S. and EU have long discussed how to address the Chinese government's support for its own steel and aluminum markets.

Monopoly Power and Market Distortion

A market may become distorted when a single busines💜s holds a monopoly or when other factors prevent free and open competition. This often causes problems for consumers, at least in the long run, and for their competitors. A lack of competition typically means fewer choices and higher prices. 

Tech giants Amazon, Meta (formerly Facebook), and Google have all been accused of using their size and market power to engage in anti-competitive market behavior to ha🐎rm competitors and achieve greater market dominance.

The Bottom Line

Market distortion implies circumstances and actions that significantly affect prices. Governmental actions such as tariffs, taxes, and subsidies can have a profound effect. B๊anks and large corporations can have a significant impact as well. It can have a negative, trickle-down effect on consumers.