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ThrustVectoring comments on How should negative externalities be handled? (Warning: politics) - Less Wrong Discussion
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My go to examples of "characteristic behaviors of markets that are undesirable in some sense, and can be corrected by the application of an external law" are markets that would naturally become monopolies. E.g. water and electricity. I'm not an economist and haven't done much/any research on this, but I imagine that without regulation, you'd get big private monopolies, which would then be able to charge way more than would be socially efficient. The free market fails here because the barriers to entry are way higher than in other markets.
This seems intuitively likely, but, on the other hand, we thought the same thing about telecommunications, and our early move to nationalize that under the Bell corporation was wholeheartedly disastrous, and continues to haunt us to this day. I... honestly don't know. I suspect that some level of intervention is optimal here, but I'm not sure exactly how much.
In the case of water, if we were required to move water in tanks rather than pipes, water would be more expensive and traffic would be worse, but we'd also probably see far less wasted water and more water conservation.
Nationalization is not the only possible government intervention - antitrust regulations have different down-sides but they do mainly work by preserving the market rather than destroying it.