Define the Market and explain its main characteristics.

Ans.

Market structure refers to the nature and degree of competition in the market for goods and services. The structures of market both for goods market and service (factor) market are determined by the nature of competition prevailing in a particular market.

Meaning of Market

Ordinarily, the term “market” refers to a particular place where goods are purchased and sold. But, in economics, market is used in a wide perspective. In economics, the term “market” does not mean a particular place but the whole area where the buyers and sellers of a product are spread.

This is because in the present age the sale and purchase of goods are with the help of agents and samples. Hence, the sellers and buyers of a particular commodity are spread over a large area. The transactions for commodities may be also through letters, telegrams, telephones, internet, etc. Thus, market in economics does not refer to a particular market place but the entire region in which goods are bought and sold. In these transactions, the price of a commodity is the same in the whole market.

According to Prof. R. Chapman, “The term market refers not necessarily to a place but always to a commodity and the buyers and sellers who are in direct competition with one another.” In the words of A.A. Cournot, “Economists understand by the term ‘market’, not any particular place 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. Cournot’s definition is wider and appropriate in which all the features of a market are found.

Characteristics of Market

The essential features of a market are:

(1) An Area: In economics, a market does not mean a particular place but the whole region where sellers and buyers of a product ate spread. Modem modes of communication and transport have made the market area for a product very wide.

(2) One Commodity: In economics, a market is not related to a place but to a particular product.

Hence, there are separate markets for various commodities. For example, there are separate markets for clothes, grains, jewellery, etc.

(3) Buyers and Sellers: The presence of buyers and sellers is necessary for the sale and purchase of a product in the market. In the modem age, the presence of buyers and sellers is not necessary in the market because they can do transactions of goods through letters, telephones, business representatives, internet, etc.

(4) Free Competition: There should be free competition among buyers and sellers in the market. This competition is in relation to the price determination of a product among buyers and sellers.

(5) One Price: The price of a product is the same in the market because of free competition among buyers and sellers.

On the basis of above elements of a market, its general definition may be as follows:

The market for a product refers to the whole region where buyers and sellers of that product are spread and there is such free competition that one price for the product prevails in the entire region.

Market Structure

Meaning: Market structure refers to the nature and degree of competition in the market for goods and services. The structures of market both for goods market and service (factor) market are determined by the nature of competition prevailing in a particular market.

Determinants: There are a number of determinants of market structure for a particular good.

They are:

(1) The number and nature of sellers.

(2) The number and nature of buyers..

(3) The nature of the product.

(4) The conditions of entry into and exit from the market.

(5) Economies of scale.

They are discussed as under:

1. Number and Nature of Sellers: The market structures are influenced by the number and nature of sellers in the market. They range from large number of sellers in perfect competition to a single seller in pure monopoly, to two sellers in duopoly, to a few sellers in oligopoly, and to many sellers of differentiated products.

2. Number and Nature of Buyers: The market structures are also influenced by the number and nature of buyers in the market. If there is a single buyer in the market, this is buyer’s monopoly and is called monopsony market. Such markets exist for local labour employed by one large employer. There may be two buyers who act jointly in the market. This is called duopsony market. They may also be a few organised buyers of a product.

This is known as oligopsony. Duopsony and oligopsony markets are usually found for cash crops such as rice, sugarcane, etc. when local factories purchase the entire crops for processing.

3. Nature of Product: It is the nature of product that determines the market structure. If there is product differentiation, products are close substitutes and the market is characterised by monopolistic competition. On the other hand, in case of no product differentiation, the market is characterised by perfect competition. And if a product is completely different from other products, it has no close substitutes and there is pure monopoly in the market.

4. Entry and Exit Conditions: The conditions for entry and exit of firms in a market depend upon profitability or loss in a particular market. Profits in a market will attract the entry of new firms and losses lead to the exit of weak firms from the market. In a perfect competition market, there is freedom of entry or exit of firms.

But in monopoly and oligopoly markets, there are barriers to entry of new firms. Usually, governments have a monopoly in public utility services like postal, air and road transport, water and power supply services, etc. By granting exclusive franchises, entries of new supplies are barred. In oligopoly markets, there are barriers to entry of firms because of collusion, tacit agreements, cartels, etc. On the other hand, there are no restrictions in entry and exit of firms in monopolistic competition due to product differentiation.

5. Economies of Scale: Firms that achieve large economies of scale in production grow large in comparison to others in an industry. They tend to weed out the other firms with the result that a few firms are left to compete with each other. This leads to the emergency of oligopoly. If only one firm attains economies of scale to such a large extent that it is able to meet the entire market demand, there is monopoly.