Editing Market failure (section)

===Unequal bargaining power===
{{main|Inequality of bargaining power}}
In ''The Wealth of Nations'' [[Adam Smith]] explored how an employer had the ability to "hold out" longer in a dispute over pay with workers because workers were more likely to go hungry more quickly, given that the employer has more property, and have fewer obstacles in organising.<ref>A Smith, ''The Wealth of Nations'' (1776) Book I, chapter 2</ref> Unequal bargaining power has been used as a concept justifying economic regulation, particularly for employment, consumer, and tenancy rights since the early 20th century.<ref>e.g. EU [[National Labor Relations Act of 1935]] §1. EU [[Unfair Terms in Consumer Contracts Directive]].</ref> [[Thomas Piketty]] in ''[[Capital in the Twenty-First Century]]'' explains how unequal bargaining power undermines "conditions of "pure and perfect" competition" and leads to a persistently lower share of income for labor, and leads to growing inequality.<ref>T Piketty, ''[[Capital in the Twenty-First Century]]'' (2011) ch 9, ‘insofar as employers have more bargaining power than workers and the conditions of “pure and perfect” competition that one finds in the simplest economic models fail to be satisfied…’.</ref> While it was argued by [[Ronald Coase]] that bargaining power merely affects distribution of income, but not productive efficiency, the modern behavioural evidence establishes that distribution or fairness of exchance does affect motivation to work,<ref>A Cohn, E Fehr, B Herrmann and F Schneider, ‘Social Comparison in the Workplace: Evidence from a Field Experiment’ (2014) Journal of the European Economic Association</ref> and therefore unequal bargaining power is a market failure.<ref>Discussed in E McGaughey, ‘Behavioural Economics and Labour Law’ (2014) [https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2460685 LSE Law, Society and Economy Working Papers 20/2014], 12-13 in A Ludlow and A Blackham, New Frontiers in Empirical Labour Law Research (2015) ch 6</ref> Notably, the price of labour was excluded from the scope of the original charts on supply and demand by their inventor, [[Fleeming Jenkin]], who considered that the wages of labour could not be equated with ordinary markets for commodities such as corn, because of labour's unequal bargaining power.<ref>F Jenkin, 'The Graphic Representation of the Laws of Supply and Demand and Other Essays on Political Economy' (1887, 1996 edn Routledge)</ref>