I believe GP was using "market failure" in the sense that the market is not allocating resources in a (Pareto) efficient manner, because of said externalities.

I believe GP was using "market failure" in the sense that the market is not allocating resources in a (Pareto) efficient manner, because of said externalities. https://en.wikipedia.org/wiki/Market_failure https://en.wikipedia.org/wiki/Market_failure