Market: Definitions, Classification, Structure, Features. 🙂
Meaning of Market
Market means a place where there are many buyers and sellers of different products are actively engaged in buying and selling acts. But in economics, the market is a comprehensive term and there is no particular place where the buyers and sellers are physically present. Buyers and sellers are scattered and they are in contact with one another through the means of communication like letters, agents, brokers, telegraphs, newspapers etc.
Definitions of Market
Thus, the above definitions revealed that a market is all the comprehensive area where buyers and sellers are scattered and they are in close touch with one another that the price of commodity Trends identical in that area.
Salient Features or Characteristics of Market
We have given several definitions of a market the following are the salient characteristics or features of a market:
1. One Area
The market does not mean that the buyers and sellers of a commodity are physically present but the market is one area or region in which buyers and sellers of the commodity are scattered they are enclosed touch with one another through different means of communication.
2. Buyers and sellers
Exchange presupposes at least one buyer and seller of a commodity. Buyers and sellers are a must for a market. Transactions take place between sellers and buyers but their physical presence is not necessary. They may have contact with the different type of communication.
3. One commodity
For the existence of a market, they should be at least. One commodity like cloth, wheat, vegetables, sugar etc. and the market is termed as Cloth Market, wheat market, vegetable market etc.
4. Perfect competition
When the price of a commodity will be only when there is perfect competition in the market. Professor Coornot has emphasized that a market must possess the characteristic of perfect competition wherein buyers and sellers are free to enter the market.
5. One price
There is perfect competition between buyers and sellers. It requires that there should be single price prevailing in the market. Thus, The market area should have one price only.
Classifications of Markets
Markets have been classified into several categories on the basis of the elements found in their existence. They are discussed below:
On the basis of area or region
on the basis of area or region a market can be classified into the following categories:
1. Local market
When buyers and sellers of certain commodities are limited to an area or region then the market is called local market. Heavyweight goods and perishable goods have the local market because their demand is concerned with a particular area or region. For bricks, stones, milk, vegetables etc.
2. Regional market
If the buyers and sellers of a commodity are concentrated in a certain region or state, The market is called regional market. The area is wide than the local market. The market for Mexico market is in Mexico. 🙂
3. National market
When the demand for some goods is limited to the boundary of the country the market is called national market. Gandhi cap and Nehru jacket are examples of such markets.
4. international market
When the demand for goods crosses the boundary of a country, the market is called international market. Gold, silver, food-grains, and medicines are bought and sold throughout the world. Hence their market is international market.
Markets on the basis of time element
On the basis of the time management the market can be classified into following categories:
1. Very short period market
The supply of goods in this market is limited to their stock only. We cannot increase their supply. The demand determines the price of such commodities.
2. Short period market
During this period production can be increased to the productive capacity and produces cannot adjust the supply according to the demand. demand plays an important role in price determination.
3. Long period market
It is a market wherein the supply can be adjusted to the quantity demanded. All the factors of production are variable and even the scale of productions can be changed. Supply plays an important role in price determination. The price under this market is called ‘long-run price’ or ‘normal price’.
4. Very long period market
Under this market both demand and supply can be changed. Demand increases due to increase in population, change in tastes, habits, and fashions while supply can be increased by increasing the variable inputs and even the scale of production can be changed. There is price determination by the economic forces of demand and supply and the permanent equilibrium is attained. Thus, The market price is called ‘very long run price.’
Markets based on competition
On the basis of competition prevailing in the market the following classification is done:
1. Perfect market
The market where there is competition between sellers and buyers and within sellers and within buyers the market is called perfect market or ‘Perfect Competition Market’. The perfect market has the following salient features:
A large number of buyers and sellers, Homogeneous product, Free entry and exit of firms in the industry, Perfect knowledge of market conditions, the Perfect mobility of factors of production, Adequate facilities of means of communication and transformation.
2. Imperfect market
A market where perfect competition is not in existence. The number of buyers and sellers is not very large. Product differentiation is there. There is no perfect knowledge of market conditions. There is no single price in this market.
Market on the basis of Functions
On the basis of functions, markets can be classified into following categories:
1. Mixed or General market
A market where all types of goods are bought and sold is called mixed or general market. Markets in cities are found of this category.
2. Specialized market
A Market where a particular commodity is sold is called up a specialized market. Vegetable market, foods market, Cloth Market are examples of such marketing.
3. Marketing by samples
When the goods are bought and sold on the basis of samples. The market is called Marketing by samples. Oilseeds, food grains and raw cotton are bought and sold on the basis of samples.
4. Marketing by grades
When the goods are graded and then different buyers and sellers deal in such goods on the basis of their grades, then the market is called Marketing by grades. Agricultural Products are graded and then they are sold accordingly. Dalda, bath soap, edible oil etc. Are sold on the basis of grading.
On the basis of Nature of Commodity
The market is also Classified on the basis of nature of commodity is given below:
1. Product market
A market where a particular product is bought and sold is called a product market. For example, agricultural products are sold in agricultural markets is a market of this type. Market: Definitions, Classification, Structure, Features.
2. Stock market
A market where is stock and shares, bonds, securities, debentures etc. are bought and sold is called the stock market. Bulls and bears are engaged in finalizing the transactions as per the market rates.
3. Bullion market
A market where silver and gold are bought and sold is called Bullion market. In this market metallic trading takes place.
Markets based on Legality
On the basis of legality, markets can be put into two categories are given below:
1. Legal market
A market where legal transactions of goods and services take place between buyers and sellers. It is recognized by the government. It is also called a fair market.
2. Illegal market
A market where high prices are charged what has been fixed by the government and it happens when the goods are in short supply. Businessman and traders earn profits by indulging in black marketing, smuggling, and hoarding. Hong Kong market is an illegal market.
How much is to be produced and at what price is to be sold are the two decisions taken by an individual firm or producer. Both these are affected by the market structure.
The Determinants of market structure and given below:
- Nature of commodity determines the market structure. the commodity may be either homogeneous or identical and heterogeneous or differentiated.
- The number of buyers and sellers or few sellers and large buyers or large sellers and few buyers etc.
- Mutual inter-dependence of buyers and seller also determine the market structure.
On the basis of above determinants of market structure, we can conclude that the market structure depends upon the degree of competition prevailing in the market.
The Competition in the market may be the following categories:
1. Perfect competition
2. Imperfect competition
- Monopolistic competition
The Market Structure can be shown by the following chart:
Thus, there are two extremes of market structure. On the one hand, we have perfect competition or pure competition and monopoly on the other hand. In between these two extremes have imperfect competition consisting of monopolistic competition, oligopoly, and duopoly. The various forms of the market structure are discussed below:
(1) Perfect Competition or Pure Competition
A market structure where a large number of buyers and sellers selling homogeneous product and the price is determined by the industry. All the times sell the product on one price.
In the other words of Mrs. Joan Robinson, “Perfect competition prevails when the demand for the output of each product is perfectly elastic. This entails first, that number of sellers is large, so that the output of any other seller is a negligible smaller portion of the total output of the commodity, and second, that buyers are all alike in respect of their choice between rival sellers so that the market is perfect.”
Thus, we can say that perfect competition is characterized by a large number of buyers and sellers with identical product selling on the price with the perfect mobility of factors and perfect knowledge of market conditions not influenced by either individual seller or buyer in finalizing transactions.
Salient Features of Perfect Competition
The Following are the Salient features of Perfect Competition:
(1) A large number of buyers and sellers
There is a large number of buyers and sellers of a commodity under this market structure. No individual seller or buyer is in a position to influence the market price as they sell or purchase a small portion of the total stock available in the market. Hence seller and buyer accept the price prevailing in the market and take decision accordingly.
(2) Homogeneous product
The product sold by various firms in this market is identical. Identical product means that each unit of the product is the perfect substitute. There is no non-price competition (advertisement and sales promotion) in this market for boosting the sells.
(3) Free entry and exit of firms in an industry
In this market, each individual firm is free to enter and exit the industry whenever they are interested.Thus, There are no restrictions on the entry and exit of firms in the industry.
(4) Perfect mobility of factors of production
All the factors of production have perfect mobility. Whenever there is the change in their remuneration they can move from low paid remuneration to highly paid remuneration in Other industries under this type of market.
(5) Perfect knowledge of market conditions
Under this type of market buyers and sellers have perfect knowledge regarding the price of the product. Its availability and who is selling the product and who are buying the product. Perfect knowledge leads to the existence of single price in the market.
(6) No transport cost
Under this market, there is no transport cost because the market is adjusting to the area. Thus, A commodity is easily carried away from one part of the market to another that there is no need of transport cost.
(7) Absence of artificial restrictions
Under this type of market, there is non-existence of any artificial restrictions on the demand and supply of the product, prices of inputs and products and price determination.
English economists believe that there is perfect competition while American economist supports the concept of pure competition. In pure competition there is a lack of elements there are certain elements in existence.
The following are the salient features of Pure competition
- A large number of buyers and sellers
- Homogeneous product
- Free entry and exit of firms in an industry
(2) Imperfect Competition
Another type of another type of market structure based on competition is Imperfect competition. There is small number of firms selling the differentiated product. The concept of imperfect competition was developed by Mrs. John Robinson and professor chamberlain in 1933. Under this market, there is a large number of buyers and sellers which product differentiation, There are no restrictions on the entry and exit of firms but there is an existence of non-price competition among the better of these differentiated products.
Imperfect competition in the stage between perfect competition and monopoly.
Competition is said to be Imperfect if the number of sellers is limited and there is product differentiation. – Professor Chamberlain
On the basis of definitions of Imperfect competition we can say that the following are the salient features of imperfect competition:
- A small number of buyers and sellers.
- Ignorance or laziness of buyers and sellers
- Product differentiation
- Difference in prices
- Non-price competition or advertisement and sales promotion.
- Highly transport cost.
- Other factors prevailing in the market namely Trademark, the behavior of sellers, credit facility, home delivery and repair services, guarantee, samples etc.
Types or Forms of Imperfect Competition
Different Types of imperfect competition are as given below:
- Monopolistic competition
The above categories of imperfect competition as discussed below:
It is one of the form/Types in perfect competition. There is neither perfect competition nor pure monopoly market structures in practice. Monopolistic competition is a market structure in between perfect competition and Monopoly. It has some of the characteristics of perfect competition and some of the characteristics of the monopoly. Some of the definitions of monopolistic competition are given below:
Thus, Monopolistic competition is a market situation in which there are many sellers of a particular product, but the product of each seller is in some way differentiated in the minds of consumers from the product of every other seller.
Definations of Monopolistic competition.
Characteristics or Features of Monopolistic Competition
The following are the salient features or characteristics of monopolistic competition:
A large number of buyers and sellers
In a monopolistic competition market, there is a large number of buyers and sellers. Sellers of a commodity or not in a position to affect the market behavior individually and the buyers purchase the goods as per their preferences. The number of buyers and sellers is smaller than those of perfect competition in this market. (Market: Definitions, Classification, Structure, Features)
Product differentiation is another characteristic of monopolistic competition. But these products are near substitute. The differentiation is based on the quality, shape, size, packing, trademark, brand, color, behavior of the seller and location of the shop. However being the differentiation the products of a seller are the close substitute of another seller.
Free entry and exit of firms
Under this market structure, all the firms are free to enter and exit the industry as and where they are interested. New firms are free to enter the market with new brands of products which are close substitutes of the existing brands.
Under monopolistic competition firms complete with one another without changing the prices of their products. But they indulge in advertisement and sales promotion techniques (non-price competition) to attract more customers in order to boost their sales.
Varying preferences of consumers
Under monopolistic competition, sellers are selling varied products which are different in quality and quantity. Buyers buy these products according to their preferences, income etc. Buyers are attracted by the sellers on the basis of specialized qualities of their products.
Facilities to the customers
Under monopolistic competition sellers of a product provide various facilities to their customers so that they are attracted to purchase more of their products, credit facility, home delivery, repair facility. All these facilities attract customers.
Existence of competition and Monopoly elements
Under monopolistic competition, some of the characteristics of perfect competition are in existence such a large number of buyers and sellers, free entry and exit of firms in the industry. On the other hand, some of the salient features of monopoly product differentiation and non-price competition are also found in this market. Hence we call it a midway between perfect competition and monopoly.
Demand curve is highly elastic
Under monopolistic competition, the demand curve is highly elastic because firms are free to enter and exit the industry.
Thus, we can say that product differentiation is the main character on the basis of which monopolistic competition is recognized as a different market structure.
Oligopoly is also known as competition among law. The word Oligopoly is made up of Oligos + Pollen. Oligos mean few and Pollen means to sell.
Oligopoly is one of the kinds of Imperfect competition. Such market structure is found when the number of sellers are few. Oligopoly is a market situation in which the number of sellers dealing in a homogeneous or differentiated product in small.
Thus, When oligopoly firm sells a homogeneous product it is called Homogeneous Oligopoly. Whereas when a firm of an Oligopoly industry sale differentiated the product, It is called Heterogeneous Oligopoly. It is also known as differentiated Oligopoly.
Characteristics or features of Oligopoly as under:
The most important feature of Oligopoly is interdependence in the decision making of the few firms which comprise the industry. This is because when the number of competitions is few, any change in price, direct effect on the fortune of the rivals, Who will them retaliate in changing their own prices. Output or advertising technique as the case may be. Thus, It is therefore clear that Oligopolistic firm must consider not only the market demand for the industry product but also the reactions on of other firms in the industry to any major decisions it takes.
Importance of Advertising and Selling Cost:
A direct effect of the interdependence of Oligopolists is that the various firms have to employ various aggressive and defensive marketing weapons to gain a greater share of the market or to maintain their share. For the various firms have to incur a good deal of cost on advertising and other measures of sales promotion.
Therefore there is a great importance of advertising and selling cost in an oligopoly market. It is to be noted that firm in such type of market avoid price cutting and try to compete on non-price basis because if they still undercutting one another type of price war will emerge.
The theory of Oligopoly is a theory of Group behavior, not of mass or individual behavior and to assume profit-maximizing behavior on Oligopolists part may not be very valid.
There is a Generally Accepted theory of group behavior. Do the members of a group agree to pull together in promotion of common interests or will they tight to promote their individual interest. Does the group possess any leader? It so how does he get the others to follow him? Each Oligopolist closely watches the business behavior of the Other oligopolist in the industry and Designs his moves on the basis of some assumptions of how very behave or likely to behave.
A small number of sellers:
Oligopoly is a market in which there are few sellers of a commodity seller are selling a large part of the total supply of the commodity in the market and a seller is in position to affect the price and activities of other firms.
Under this market condition, there is strong competition among various sellers. Each seller wants to retaliate its price on basis of the reaction of other sellers.
Another important feature is Homogeneous products. When a producer is producing the Homogeneous product it is said to be Homogeneous Oligopoly.
When a few sellers or producer are producing heterogeneous products or differentiated products it is said to be heterogeneous Oligopoly.
Barriers to Entry of Firms:
Barriers to entry to and Oligopolistic industry arise due to- Huge investment requirement, Most advantage by existing firm, Brand loyalty, Price cutting.
Lack of Uniformity:
Another important feature is Lack of uniformity. Size of the firms is not uniform. Some firms are very large while other firms are very small. This condition is called an asymmetrical.
Oligopoly firms are always engaged in a price war. Product differentiation leads to the possibility of the price war. When any firm cut the price their firm’s snail doing this same that results in the price war.
Under the demand curve is indeterminate because of the mutual interdependence of the firms and actions of reactions of an individual firm affect other him as well.
A market wherein there are two sellers or producers of a product is called do a Duopoly. They have a complete hold over the supply of that product. A product of both the sellers is Homogeneous and the prices are also the same.
Both the firms are interdependent and they try to keep the same price. If a seller of the commodity lowers the price then the other seller is forced to reduce its price because customers will prefer to purchase the cheaper commodity. Both the sellers have to think about the possible impact when they are taking independent decisions relating price and prediction.
In order to maximize the profits of each, they may form an association or can share the market and can charge high prices for the customers. It will lead to exploitation of the customers.
When there is a single seller or producer of commodity or service the market structure is called monopoly market.
Definitions of Monopoly
“It can be well remarked that the producer under pure Monopoly is so powerful that he is always able to take the whole of all consumers income whatever levels of his output. The average revenue curve of the firm under pure Monopoly will be a rectangular hyperbola within elasticity of demand equal to Unity.” – Stonier and Hague
Thus, a Monopoly market structure is that where there is a single seller of a commodity having full control over its supply and there is no close substitute.
Characteristic or Features of Monopoly
On the basis of above definitions we can discuss the characteristics of monopoly market structure As given below:
1. Single seller and a large number of buyers
A commodity or service is a characteristic of the monopoly market. Individual buyers cannot influence the price of the product.
2. No close substitute
Under Monopoly market, the commodity or service sold by the seller has no close substitute.
3. One firm one industry
The seller or producer of a commodity or service is firm as well as an industry. There is no distinction between the firm and industry under the Monopoly market.
4. Restriction on the entry
Under Monopoly, no form can enter the industry or market as there are several types of artificial and natural restriction imposed by the monopolist this restriction may be in the form of copyright, patent, license, owner of mines etc.
5. Control over the supply
Under Monopoly, the seller of a commodity has full control over the supply and he is a price maker. He is free to fix whatever the charges in order to attain his objective of maximization of profit.
6. Either price or supply fixation
A Monopoly either fixes the price or determines the supply of its product. He does not do both the things simultaneously. In order to maximize his profit, he will either fix the price or control the supply of his output.
Market Structure Based on Buyers
Market structure is also based on the number of buyers. It may be of following types:
A market where there is a single bar of a commodity or service is called Monopsony.
A market where there are two buyers of a commodity or product is called Duopsony market.
A market structure in which there are few buyers of a product the market is called Oligopsony. These buyers can influence the price in the market by an agreement of association.
A market where there is a large number of buyers of a product or service is called monopolistic competition.
Thus, Now you know about Market: Definitions, Classification, Structure, Features. 🙂
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