Capterra Glossary
Market Distortion
Market distortion is any situation in which the prices of goods and services on the market are influenced by anything other than the natural forces of supply and demand. Market distortion occurs when a government body or large, powerful corporation distorts the market. Government bodies often practice market distortion to protect the general well-being of market participants, such as when government entities pay farmer’s subsidies to create high agricultural production levels for consumers. Large corporations that hold a monopoly over a certain sector of the marketplace can also participate in market distortion by driving up product and prices in the sector of their marketplace.This forces individual consumers to pay high prices for goods and services, as they have limited buying options. However, this method of market distortion is often regulated by the government to ensure the well-being of individual consumers.
What Small and Midsize Businesses Need to Know About Market Distortion
Both individual consumers and small businesses reap serious drawbacks when large corporations participate in market distorting activities, such as price-fixing, predatory pricing, dumping, or patent abuse. For instance, dumping is a method of market distortion that some enterprises use to force small businesses out of the market. Dumping occurs when an established company sells its goods and services at a price that is so low that other companies in their industry can't afford to compete with them. These practices are considered illegal in most countries, including the United States.
Related Terms
- Enterprise Resource Planning (ERP)
- Procurement
- Total Cost of Ownership (TCO)
- Vendor
- Supply Chain Planning (SCP)
- Telematics
- Senpai
- Vendor Management
- Value-Added Reseller (VAR)
- Bill of Materials (BOM)
- Supply Chain
- Smart Factory
- Scanner
- SCADA (Supervisory Control and Data Acquisition)
- Radio-frequency Identification (RFID)