Market refers to the arrangement in a given area whereby buyers and sellers come in contact with each other directly or indirectly, to buy or sells goods. Buyers and sellers can carry on their transaction indirectly, through agents, telephone, mobile or internet. Whatever way the buyers and sellers interact, they do so to exchange goods and services for money. In the process, the price and quantity of the goods and services traded are also determined.
Thus, market is a mechanism or system by which buyers and sellers interact to determine the price and quantity of a good or service.
Important Features of a Market
A market has following features:
- Commodity - there must be a commodity which is being demanded and sold.
- Buyers and sellers - there must be buyers and sellers of the commodity.
- Communication - there must be communication between buyers and sellers.
Structure of Market
Structure of market means nature of the product, number of sellers and buyers in the market. On this basis two extreme forms of market are:
- Monopoly market
- Perfectly Competitive market
The word "Monopoly" has been derived from the two Greek words ‘Monos’ and ‘Polus’ means single seller.’Monos’ means single and ‘Polus’ means seller, so the word "Monopoly" means single seller. Monopoly is a market structure in which there is a single firm producing all the output and there is no close substitute of product sold by the monopolist, thereby ruling out any sort of competition.
In this market the seller does not face any competition because there are no other sellers of the product he is selling. The seller is in a position to charge a high price of his product depending upon the response of the consumers. Example: In India the government has monopoly in atomic energy, defence, public water supply system, railways.
Features of Monopoly
- A single firm: The monopolist is the only producer of the good. He has got no competitor. He is the only one who rules the market with his commodity.
- No close substitute of the commodity: There are no close substitutes of the commodity produced by the monopolist. Close substitute means another similar product having same use. The monopolist produces all the output in a particular market.
- Price maker: The monopolist being the sole seller of the commodity in the market decides the price of the commodity as there is no one to challenge his price. The monopolist is a ‘price-maker’. It does not mean that monopolist can fix both price and the quantity demanded. If he fixes a high price, less quantity of the commodity will be demanded.
- No Entry of New Firm: It is not possible for new firms to enter in the market and compete with the single seller. Being the single seller or firm, there is no difference between firm and industry under monopoly.
- The aim of the monopolist is to maximise profit.
2. Perfectly Competitive Market or Perfect Competition
The other extreme situation of monopoly market is called perfectly competitive market or perfect competition.
Feature of Perfect Competition
- Large number of sellers and buyers: As against monopoly market, a competitive market has large number of sellers selling the commodity to a large number of buyers.
- Homogeneous product: Under perfect competition only a single product is sold. This means all the sellers sell the same type of product to buyers. So the product is a perfect substitute.
- Free entry and exit: Under perfect competition there is no bar on any new firm or producer to enter the market to sell or produce the product. Similarly if any existing seller wants to exit then he is free to do so.
- Every seller wants to earn maximum profit.
- The government’s role is to provide protection to sellers and do not interfere in business.
- Under perfect competition sellers and buyers have perfect knowledge about the product.
- There is no bar on factors of production such as labour etc. to move from one production unit to another to do work.
Market Structure in Real World Situation
The situation of monopoly or perfect competition is not seen in real world. As per law private monopoly is not allowed. Only monopoly by the government exists. Now-a-days the market is flooded with so many varieties of the same product that perfect competition in real sense also does not exist.
For example, soap - a product meant for taking bath or washing hands. Under perfect competition it is expected that only one type of soap will be sold by many sellers. But in reality we have different brands of soaps available in the market and sold by different firms such as Lux, Dove, Liril, Godrej, Nim, Mysore Sandal, Johnsons, Hamam, dettol, Lifebuoy. These are all used for the same purpose i.e. taking bath, but they are different in terms of colour, packaging, fragrance. All these sellers also incur heavy expenditure on advertisement to sell their kind of soap.
Contrary to perfect competition where there are many sellers selling a single product without any advertisement, in this case there are many sellers selling different variations of particular product. So we cannot say that this type of market is perfectly competitive. This type of market is called monopolistic or imperfect competition.
Classification of Markets
On the basis of channels or saleable lots, markets are classified into:
- Wholesale markets
- Retail markets
1. Wholesale Markets
A wholesaler is a distributor or middleman who sells mainly to retailers and institutions, rather than consumers. When in a market goods are transacted in big lots it is called a wholesale market. Wholesalers usually do not sell goods in small lots. They usually sell to the retailers. The wholesaler is the essential link between manufacturers and end consumers. It is the presence of wholesalers that manufacturers are in comfort zone as they can sell their products in large quantities and focus on business and production.
2. Retail Markets
Retail consists of the sale of physical goods or merchandise from a fixed location, such as a departmental store, shopkeeper in small or individual lots for direct consumption by the purchaser. In retail markets, goods are sold in small lots. Retailers normally sell to the ultimate consumers.
Manufacturer → Wholesaler → Retailer → Consumers
In the channel of distribution of goods and services the position of a retailer is most important as it is indirect contact with the final consumers. So the location of the retail shop or outlet is very important as compared to wholesale business. A retail outlet must be located nearer to residential localities so that people can easily come to buy goods and services.
The retailer also has to incur lot of expenditure on decoration of offices shops and proper presentation of the commodities so that consumers are attracted towards the retail shop.
It is an innovative process whereby consumers directly buy goods or services from a seller without an intermediary service over the internet. It is also known as electronic commerce. Now a days, online shopping has become popular, shopping has evolved with the growth of technology. In this shopping one can use a credit card or debit card to make payments, however some systems enable users to create accounts and pay by alternative means, such as:
- Billing to mobile phones and landlines
- Cash on delivery
- Debit card
- Postal money order
Once payment has been accepted the goods or services can be delivered through downloading, distribution, in-store picking. Online stores are usually available 24 hours a day, and many consumers have internet access both at work and at home so they can, rather than visiting any store or shop, they prefer to purchase through internet only.
Online stores must describe the products for sale with text, photos, and multimedia files with detail instructions. In present scenario through online shopping one can shop for varieties of goods and services in no time. Over all, this mode of shopping has gained importance in recent years only due to exposure to technology in the market.