What is Market? Definition, Concept, and Features

What is a Market?

Markets create order by bringing trading partners together, with companies supplying goods and services and customers wanting to obtain them. Resources are allocated among households and firms without government interference.

Adam Smith, the founder of modern economics, described the dynamic best as producers earning a living by selling products consumers want. Consumers are motivated by self-interest and must decide how to use their money to select the goods they need or want the most.

Economists define three concepts: total, average, and marginal revenue, which are used to study revenues from the sale of products. This chapter analyzes different markets and their types, explores the concept of total, average, and marginal revenue, and illustrates numerical examples related to market and revenue.

Concept of Market

Markets are how buyers and sellers carry out exchange at mutually agreeable terms. By bringing together the two sides of exchange, markets determine price, quantity, and quality. Goods and services are bought and sold in product markets. Resources are bought and sold in resource

Cournot points out that “Economists understand the term market, not any particular marketplace in which things are bought and sold but the whole of any region in which buyers and sellers are in such free intercourse with one another that the price of the same goods tends to equality easily and quickly.”

Prof. Samuelson, ” A market is a mechanism by which buyers and sellers interact to determine the price and quantity of a good or service.”

Market’ is a term that is commonly used for a particular place or locality where goods are bought and sold. In economics, market is more than a geographical area where goods are bought and sold. Market is defined as a complex set of activities by which potential buyers and potential sellers are brought in close contact for the purchase and sale of a commodity. A market can be regional, national or international market.

Features of Market

A market must have the following features:

• 1. Commodity: There must be a commodity that is being demanded and sold.
• 2. Buyers and sellers: There must be buyers and sellers of the commodity.
• 3. Communication: There must be communication between buyers and sellers.
• 4. Place or area: There must be a place or area where buyers and sellers can interact with each other.

Perfect and Imperfect Competition Market

It structure describes the important features of a market, such as the number of suppliers (are there many or few?), the product’s degree of uniformity (do firms in the market supply identical products, or are there differences across firms?), the case of entry into and exit from the market (can firms come and go easily or are entry and exit blocked?), and the forms of competition among firms (do firms compete based on price alone or do they also compete through advertising and product differences?) Therefore, market structures can be classified based on the degree of competition in a market. These are different types of market structures.

Perfectly Competitive Market

A perfectly competitive market is characterized by

• (1) Many buyers and sellers so many that each buys or sells only a tiny fraction of the total amount in the market;
• (2) Firms sell a commodity, which is a standardized product, such as a bushel of wheat, or a dozen eggs, such a product does not differ across suppliers;
• (3) Market participants are fully informed about all prices and production processes; and
• (4) Firms and resources are freely mobile that is, over time they can easily enter or leave the industry without facing obstacles like patents, licenses, and high capital costs.

A perfectly competitive market is characterized by a situation when there is perfect competition in the market Some of the definitions of perfect competition given by different economists are as follows:

Robinson, perfect competition can be defined as, “When the number of firms being large, so that a change in the output of any of them has a negligible effect upon the total output of the commodity, the commodity is perfectly homogeneous in the sense that the buyers are alike in respect of their preferences (or indifference) between one firm and its rivals, then competition is perfect, and its rivals, then competition is perfect, and the elasticity of demand for the individual firm is infinite.”

Boulding, “A perfect competition market may be defined as a large number of buyers and sellers all engaged in the purchase and sale of identically similar commodities, who are in close contact with one another and who buy and sell freely among themselves.”

A perfect competition market is that type of market in which the number of buyers and sellers is very large; all are engaged in buying and selling a homogeneous product without any artificial restrictions and possessing perfect knowledge of the market at a rime In other words, it can be said, a market is said to be perfect when all the potential buyers and sellers are promptly aware of the prices at which the transaction take place. Under such conditions, the price of the commodity will tend to be equal everywhere.

Imperfectly Competitive Market

In economic terms, imperfect competition is a market situation under which the conditions necessary for perfect competition are not satisfied. In other words, imperfect competition can be defined as a type of market that is free from the stringent rules of perfect competition. Unlike perfect competition, imperfect competition is characterized by differentiated products. An English economist, Joan Robinson, explained the concept of imperfect competition. In addition, under imperfect competition, buyers and sellers do not have any information related to the market as well as the prices of goods and services. In imperfect competition, organizations dealing in products or services can influence the market prices of their output.

Imperfect competition is a market situation with a limited number of sellers. This is also known as monopolistic competition: each firm realizes that the price it can charge is a decreasing function of the quantity it sells so it faces a downward-sloping demand curve. Imperfect competition assumes that sellers do not attempt to forecast the reactions of individual competitors; this is contrasted with oligopoly, which assumes that firms take account of the expected reactions of individual rivals.

Monopoly

The term monopoly has been derived from the Greek word Monopolian, which signifies a single seller. In this way, monopoly refers to a market situation in which there is only one seller of a commodity. Monopoly refers to a market structure in which there is a single producer or seller that has control over the entire market. This single seller deals in the products that have no close substitutes.
Some of the definitions of monopoly given by different economists are as follows:

Prof. Thomas: “Broadly, the term monopoly is used to cover any effective price control, whether of supply or demand of services or goods; narrowly it is used to mean a combination of manufacturers or merchants to control the supply price of commodities or services.”

Prof. Chamberlain: “Monopoly refers to the control over supply.”

Koutsoyiannis: “Monopoly is a market situation in which there is a single seller. There are no close substitutes of the commodity it produces there are barriers to entry”.

Thus, as a single seller, monopolist may be a king without a crown. If there is to be monopoly, the cross elasticity of demand between the product of the monopolist and the product of any other seller must be very small. There is only one supplier in the market. Still, there are many demanders, so many that no buyer has any control over the price monopolized market is characterized by barriers to entry, which are restrictions on the entry of new firms into an industry. Because of barriers, new firms cannot profitably enter that market.

Monopolistic Competition

Monopolistic competition, introduced by Harvard University professor Edward H. Chamberlin in 1933, is a market structure where many producers offer substitute products that consumers don’t perceive as identical. The demand curve for each supplier is not horizontal but slopes downward, and each supplier has some power over the price it can charge. This means that firms in this market are not price takers but price makers, with many buyers preventing any buyer from influencing the price. Some of the definitions of monopolistic competition given by different economists are as follows:

J. S. Bains: Monopolistic competition is a market structure where there is a large number of small sellers, selling differentiated but close substitute products.”

Baumol: “The term monopolistic competition refers to the market structure in which the sellers do have a monopoly (they are the only sellers) of their product, but they are also subject to substantial competitive pressures from sellers of substitute products.”

Leftwitch: “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.”