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Types of Market

Updated on June 1, 2014
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On the Basis of Competition

Markets may be classified into various ways. According to the degree of competition, markets may also be classified into perfect markets and imperfect markets.

Perfect Market

A perfect market is one where there is perfect competition. Sometimes a distinction is made between pure competition and perfect competition. Perfect competition is a wider concept which includes not only the conditions or pure competition but also a few more.

Features of Perfect competition

  1. Large number of buyers and sellers
  2. Homogeneous product
  3. Free entry or exit
  4. Perfect knowledge about the market on the part of the buyers and sellers.
  5. Absence of transport cost.
  6. Perfect mobility of the factors of production.

Imperfect Market

A market is imperfectly competitive if the action of one or more buyers or sellers have a perceptible influence on price. An imperfect market may assume the following form:

(a) Monopoly

Monopoly is a market with a single seller of the product. Since there is only one seller, he has a complete control over the price so that he can influence the price. A monopolist may follow a uniform price policy or a discriminatory price policy for his product.

(b) Monopolistic Competition

Monopolistic competition is a market in which there are many sellers producing products which are close but not perfect substitutes. Monopolistic competition is a blend of competition and monopoly. Non-price variation, that is product variation and selling costs are the two important features of monopolistic competition.

(c) Oligopoly

Oligopoly is a market with few sellers. There is mutual inter-dependence between firms and the price and output decisions of one firm will have a considerable effect on other firms.

(d) Other forms of competition

Bilateral monopoly – single seller Vs single buyer

Monopsony – single buyer Vs many sellers

Duopsony – two buyers Vs many sellers

Oligopsony – a few buyers Vs many sellers

The following table shows at a glance the basic characteristics of four important market models:

Table 1: Basic Characteristics of the Four Market Models

Market Model Characteristics
Pure Competition
Monopolistic Competition
Oligopoly
Pure Monopoly
1. Number of firms
Many and independent
Many and independent
Generally interdependent
One and independent
2. Size of firms (relative to total market)
Very small
Very small
Generally large
Complete domination
3. Type of product
Homogeneous
Slightly differentiated
Homogeneous or differentiated
Unique
4. Degree of control over price
None
Limited
Considerable collusion; otherwise restrained by interdependence
Considerable
5. Conditions of entry
Very easy
Easy
Significant obstacles
Blocked
6. Amount of non-price competition
None
Considerable
Considerable
Limited

On the Basis of Area

According to the area covered, markets may be classified into local markets, regional markets, national markets, and international markets.

(a) Local Market

Local market refers to a market in a particular village or locality. Generally, perishable goods like vegetables, milk, butter etc. have local markets.

(b) Regional Market

Regional market refers to a market, which covers a particular region. Generally, bulky articles like bricks and stones have regional markets.

(c) National Market

If the demand and supply of a commodity is spread over the entire country, the market is said to be a national market. Generally, wheat, rice and cotton etc. have national markets.

(d) International Market

When the demand and supply of a commodity is at the global level, the market is said to be an international market. Generally, valuable metals like gold, silver, diamonds etc. have an internal market.

On the Basis of Time

On the basis of the time element, market is classified into very short period, short period, and long period markets.

(a) Very Short Period Markets

A very short period is one in which supply cannot be increased or decreased to adjust to demand. Examples for very short period markets are vegetables, fruits, milk etc.

(b) Short Period

Short period refers to a period of time in which the rate of production is variable. Increased production is possible by an intensive use of capital or by enlarging the size of the plant.

(c) Long period

Long period is a period of time in which the supply of the commodity can be varied according to the conditions of demand. Long period involves many years.

On the Basis of Commodity

On the basis of the commodity involved, markets may be classified into bullion market, share market, money market or capital market.

(a) Bullion Market

Bullion market is a market for valuable metals like gold, silver, diamonds etc.

(b) Share Market

Share market is a place in which shares are bought and sold.

(c) Money Market

Money market is a place in which short term credit instruments are bought and sold.

(d) Capital Market

Capital market is meant for very long period loans of a capital nature.

On the Basis of Transactions

On the basis of transactions, market may be classified into the spot market, and the future market. Spot market is one where goods are physically exchanged on the spot. Future market is one where an agreement is made on the spot but exchange of goods take place in future, as agreed upon by the parties.

On the Basis of the Volume of Business

Sometimes on the basis of the volume of business, markets are broadly classified into wholesale markets and retail markets. In the wholesale market, goods are transacted in large quantities, while in retail market goods are transacted in small quantities.

On the Basis of the 'Status of Sellers'

On the basis of the status of sellers, markets are broadly classified into primary markets, secondary markets and terminal markets. A primary market is one where goods are transacted from the producers to the wholesalers. Where the wholesalers act as an intermediate link between the producers and retailers it is known as a secondary market. A terminal market is one where the goods are transferred from the retailers to the ultimate consumers.

On the Basis of Government Regulations

On the basis of government regulations, markets may also be classified as regulated markets and unregulated markets. A regulated market is one where transactions are governed by various rules and regulations framed by the government. On the other hand, a market where transactions of goods and services are left to market forces of demand and supply is known as an unregulated market.

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