The word market originates from the Latin word ‘maracatus’. It is a market where diverse commodities are bought and sold at specific retail prices. Marketing is a sub-concept that is directly related to the activities of the players present within a market environment. In Economics, marketing is referred to as a strategy which is implemented to boost the sales of a product that is listed in a defined market. However, with the introduction of the internet, the entire marketing meaning has changed significantly. The modern-day meaning of marketing is directly correlated to the concept of digital marketing. Advertisement and research are the two most fundamental pillars of marketing and must be considered by sellers to boost their overall sales potential.
Classification of Market Structure
Classification of market structure is made into four types:
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Perfect Competition: It describes a market structure, where a large number of small firms compete against each other. Here, a single firm doesn't have any significant market power. Due to this, the industry as a whole produces an optimal level of output because none of the firms can influence the market pieces.
Monopolistic Competition: In this market structure, a large number of small firms compete against each other but unlike the module in perfect competition, here the firms in monopolistic competition sell similar but slightly different products. It is based on the assumptions given below:
There is a free entry or exit in the market
Firms selling differentiated products
Consumers might prefer one product over the other
Oligopoly: It describes a market structure that is dominated by a small number of firms. The firms may compete or collaborate in this way they can drive up prices and earn more profit. This market structure builds on the following:
Oligopolies can set prices
All the firms can maximize the profits
Only a few firms can dominate the market
Monopoly: It refers to a market structure where a single firm has control of the entire market. It is formed based on the assumptions like the monopolies can set the market price, there are high barriers to entry and exit, they can maximize the profits and only one firm can dominate the entire market.
Classification of the Market in Economics
Classification of market structure in Economics is done on a different basis. Let's see a traditional approach.
Traditional Approach
Traditionally, a market is a physical place where the buyers and sellers are gathered to buy and sell the respective goods.
Based on the Area: An area can generally mean local, national and international markets. They generally include goods like fish, milk, vegetables and so on.
Based on Time: Here time is the main criteria. It is divided into a short period and a long period. In a short period, perishable goods of all sold and in the long period markets, durable goods of different varieties are produced.
Based on Transactions: Here the markets are divided into spot markets and futures markets. In spot markets, if the transaction takes place, the delivery takes place. In future markets, the transactions are finalized and the payments dues for the future.
Based on the volume of business: Here, the markets are divided into two main retail and wholesale. In retail, the quantities are sold on a small scale, whereas in wholesales, the markets are featured in large volumes of business.
Based on the Nature of Goods: Based on the nature of goods, they can be commodity markets and capital markets.
Modern Approach
In modern markets, classification is based on consumer orientation as they are the king-pin of the modern market classification.
Business Markets: It is a market of business buyers and sellers. Here the companies which sell business goods and services often face well informed professional buyers who have skills in evaluating competitive offerings.
Global Markets: This type of market involves sellers and buyers from all over the world. The companies involved in selling and buying in the global marketplace face global decisions and challenges.
Consumer Markets: These types of markets specialized in selling mass consumer durable and nondurable products.
Nonprofit and Government Markets: Companies usually sell their products to non-profit institutions like the church, orphanage to governmental departments at the local state and central level.
Did You Know?
Istanbul's Grand Bazaar is known as the oldest marketplace in the world having been established in 1455.
FAQs on Market: Meaning and Types of Classification
1. What is the basic meaning of a 'market' in economics?
In economics, a market is not necessarily a physical place but an arrangement or mechanism that brings buyers and sellers into contact with one another to facilitate the exchange of goods and services. The essential features of a market include the presence of both buyers and sellers, a specific product or service to be traded, communication channels between them, and a mechanism for price determination.
2. What are the main ways in which markets are classified?
Markets can be classified on several bases. The most common classifications for the CBSE/NCERT syllabus are:
- Geographical Area: This includes Local, Regional, National, and International markets.
- Time Element: Markets are classified as Very Short Period, Short Period, and Long Period markets.
- Nature of Competition: This is the most crucial classification, dividing markets into Perfect Competition, Monopoly, Monopolistic Competition, and Oligopoly.
- Nature of Goods: This includes commodity markets (for raw materials) and capital markets (for financial assets).
3. What are the four primary types of market structures based on competition?
The four primary market structures, classified according to the degree of competition, are:
- Perfect Competition: A market with a very large number of buyers and sellers dealing in a homogeneous product, with no barriers to entry or exit.
- Monopoly: A market structure where a single seller controls the entire supply of a product that has no close substitutes.
- Monopolistic Competition: A market with many sellers offering differentiated products. It combines elements of both monopoly and perfect competition.
- Oligopoly: A market dominated by a few large firms, where each firm's actions significantly impact the others.
4. What are the key differences between a perfect competition market and a monopoly?
The key differences lie in the number of sellers, product type, and control over price. In perfect competition, there are numerous sellers offering a homogeneous (identical) product, and firms are price takers with no control over price. In contrast, a monopoly consists of a single seller with a unique product, giving the firm significant control over the market price, making it a price maker.
5. Why is it important for a business to understand the type of market it operates in?
Understanding the market structure is crucial for a business's survival and success. It directly influences key strategic decisions such as pricing strategy (whether the firm can set its own price or must accept the market price), product differentiation efforts, advertising budgets, and how to react to competitors' moves. For example, a firm in an oligopoly must constantly anticipate the actions of its few rivals, a concern that a monopolist does not have.
6. Can a market exist without a physical location? Explain with a real-world example.
Yes, a market can absolutely exist without a physical location. The core concept of a market is the interaction between buyers and sellers, which does not require them to be in the same place. A perfect example is the e-commerce market, such as platforms like Amazon or Flipkart. Here, buyers and sellers from across the globe connect, negotiate, and transact digitally without ever meeting in person.
7. How does product differentiation in monopolistic competition differ from the product uniqueness in a monopoly?
In monopolistic competition, product differentiation means firms sell similar but not identical products, competing through branding, quality, or design (e.g., different brands of soap or restaurants). Consumers have many choices. In a monopoly, the product is unique because there are no close substitutes available at all (e.g., a local public utility for water supply). The monopolist faces no direct competition, whereas firms in monopolistic competition face intense competition from others offering close substitutes.
