Marketing Inefficiency

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Definition: Marketing Inefficiency

An inefficient market can be termed as a market in which prices of stocks and commodities does not reflect available information as accurately as possible. In an efficient market the prices also does not explain the demand and supply in the market.

In an inefficient market the prices of stocks or commodities are either or more than their actual values. Thus some stocks or commodities will either be overpriced or underpriced. Thus some investors gain and others loose because of this anomaly. Generally for new companies in new industries which aren’t analyzed much, inefficient markets can be observed for stocks of those companies. The instances of upward strikes and market crashes justifies the fact that sometimes the market tend to be inefficient. Also, in an inefficient market the stock prices are normally random and are not influenced or explained by past events.

The central idea behind an inefficient market there is randomness in the market where investors attempts to find patterns and take advantage from exclusive information but fails to do so because of the randomness present thus making the information futile. Also, when a single company has exclusive access to a market or product, it can control the distribution or prices of that product thus rendering the market inefficient. It is nearly impossible to perform consistently in an inefficient market particularly in short term. In an inefficient market the analysts and professional advisors play a role of very little or no value. The most important factor coined as reason for market inefficiency according to economists is human behavior. An inefficient market is different from an efficient market in the sense that in an efficient market a lot of information is available to the investors and they can make informed and rational decision which is not possible in case of an inefficient market.

For example; the dot com bubble in 2000 is a classic example of market inefficiency in which market wide crashes took place.


Hence, this concludes the definition of Marketing Inefficiency along with its overview.


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