The failure of an internal market: The universities funding council bid system

In 1990 the Universities Funding Council attempted to create an internal market for universities funding, by creating a competitive bid system and expecting universities to compete for scarce resources. In the event the universities failed to compete and the UFC abandoned the bid system and withdrew to consider further internal market options. The reasons for this failure have been debated, and generally tend to focus on specific actions by parties in the market. However, it seems much more likely that the market failure was provoked by structural flaws in the market itself. Examination of these leads to the conclusion that internal markets are much more complex than has often been assumed, and their appropriateness for some public sector applications must be questioned.