Saturday, 13 December 2014

Meaning and basic forms of structure of market in economics | Different types of markets

Structure of market
By market structure, we mean the interconnected characteristics such as the number of buyers and sellers, the volume of transactions, the degree of collusion or secret and illegal understandings or obligations between them, the level of competition and the barriers of entry and exit into business. All these things constitute the structure of market.

Four types of market structure

There are four major types or forms of market structure as mentioned below.
  • Monopoly market also known as Controlled or Command market system 
  • Oligopoly market (where a small group of firms dominate and control the market)
  • Perfectly competitive market also known as free market system.
  • Monopsony market

1) Monopoly market
A monopoly is a market condition where only one seller controls the whole market in his field. As there is no immediate substitute for his product, the buyers have to depend on his firm for that product and thereby, he is able to charge a higher price for his product and earn more profits. There is no competition at all for his business.

The salient features of a monopoly market are that it has a single supplier, no competition in market, no substitute for the product, he is sole price maker and profit is the motive.

But, in present conditions, there are few cases of monopolistic markets as governments normally do not allow monopoly practices.

The only cases of monopoly that we can find at present are the government's own tradings in some essential services like power, fuel, water, defence and banking sectors. But, governments generally act in the interests of public and so we cannot find any harm in their monopolistic activities.

2) Oligopoly market
Oligopoly is a situation where the market is controlled by a small group of persons or firms. The firms are able to control the maximum share of business in their field.

Some examples of oligopoly are the mobile phone market, steel, automobiles and gas agencies. They control the whole market and are able to set their prices high.

Important characteristics of oligopoly market are profit maximisation, price fixing, few firms and few competition, interdependence, full knowledge of other firm's activities, long life of firms and abnormal profits.

3) Perfect competition market
A perfect competition market is a situation where there are infinite number of sellers and buyers dealing in identical products with no control over prices and other market conditions. The prices are reached automatically through interaction of supply demand forces and with some intervention of government policies to fix minimum support prices.

The characteristics of perfect market conditions are that there are unlimited sellers and buyers, no barriers for entry or exit, homogeneous products which are perfect substitutes for each other, each seller can maximise his profit, perfect mobility of factors of production, zero cost transactions as you can make direct purchases, free decision making ability and perfect knowledge of goods, etc.

4) Monopsony market
A monopsony market structure is a situation where a single buyer (not the seller) controls the whole market. The buyer can force the price to decline by his actions of collective purchases and thereby can pose a threat to monopoly trade. A single buyer purchases all the produce direct from the sellers or producers at a lower price because of his influence in the market.

Various types of markets
Besides above classification which is based on the structure of market, we can identify or classify markets into various types according to the nature of goods or services it deals with or according to the place or limits within which it operates or on their volume of business, etc.

The following are some of these classifications or types of markets.

Based on Products
  • Paddy market
  • Vegetable market
  • Cement market
  • Oil market
  • Clothes market
  • Electronics market, etc.

Based on Services
  • Financial/ Capital market
  • Labour market
  • IT market
  • Share market
  • Professional services, etc.
Based on place or boundaries
  • Local market
  • National market
  • International market
Based on Volume
  • Wholesale market
  • Retail market
Based on real presence
  • Physical / offline market
  • Online market
  • Future market (dealing in future transactions)
Wholesale market
A wholesale market is a place or system where goods are transacted in whole lots or larger quantities. The wholesaler procures goods direct from producer and sells them to retailers or other middle agents and institutions in whole lots. The wholesaler does not involve in small quantity dealings. He acts as the middleman between producer and consumer or retailer. The wholesale business facilitates manufacturers and producers of goods as they need not worry about sale of their produce and thereby concentrate on their business.

Retail market 
In retail market, the buyers and sellers meet physically. Retail market is a place where the buyer reaches seller physically and buys goods from his shop. For this reason, the retailer should locate his shop nearer to the buyer's location and keep the shop well maintained. The transactions are direct between buyer and seller in this system. So there is physical attachment between retailer and his customers. Thereby the retailer can develop good relations with his customers to keep them engaged with his shop.

Physical market
A physical market is a place where the buyer meets the seller and purchases things. Retail shops like small grocery stores, departmental stores and big shopping malls are all examples of physical market. A physical market can be also termed as offline market in contrast to an online market.

Online market
Nowadays, online shopping has become a trend in most cities. Online market is the system of buying goods using the internet through e commerce. In this system, the suppliers create a website placing all their products for display and sale online. The full details of the product along with its price and features are posted online with images of the products on sale. So any prospective buyer can land into their website, view those details and select their products and book orders. Payments are normally done through credit cards or debit cards and money transfers. Some sellers offer the facility of payment on receipt of product by the buyer.

Future market
A future market is a market wherein a customer can deal in future dealings. The buyer enters in a deal with the seller to buy certain goods or services at a certain specified price to be delivered to him at a future date. In these type of transactions, the buyers are protected from any abnormal changes in prices at that future period as they have already fixed the price with the seller. So, the buyers get relief from future price variations.

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