A set up where two or more parties engage in an exchange of goods, services and the

information is called a market. Ideally, a market is a place where two or more parties are
involved in buying and selling. The two parties involved in a transaction are called seller and
buyer.

Economists will describe a market as coming together of the buyers and sellers, i.e. an
arrangement where buyers and sellers come in direct or indirect contact to sell/buy goods and
services. For example, the market for mobile will constitute all the sellers and buyers of mobile
phones in an economy. It does not necessarily refer to a geographic location. We can
characterize market structures based on the competition levels and the nature of these
markets. Let us study the four basic types of market structures.

Let us then list a few features of a market,

 In economics, the term market will refer to the market for one commodity or a set of
commodities. For example a market for coffee, a market for rice, a market for TV’s, etc.

 A market is also not restricted to one physical or geographical location. It covers a

general wide area and the demand and supply forces of the region.

 There must be a group of buyers and sellers of the commodity to constitute a market.
And the relations between these sellers and buyers must be business relations.

 Both the sellers and buyers must have access to knowledge about the market. There
should be an awareness of the demand for products, consumer choices, and
preferences, fashion trends, etc.

 At any given time only one price can be prevalent in the market for the goods and
services. This is only possible in the existence of perfect competition.

Classification of Markets

Broadly there are two classifications of markets – the product market and the factor market.
The factor market refers to the market for the buying and selling of factors of production like
land, capital, labor, etc. The other classification of markets are as follows,

On the Basis of Geographic Location

 Local Markets: In such a market the buyers and sellers are limited to the local region or
area. They usually sell perishable goods of daily use since the transport of such goods
can be expensive.

 Regional Markets: These markets cover a wider are than local markets like a district, or
a cluster of few smaller states
  National Market: This is when the demand for the goods is limited to one specific
country. Or the government may not allow the trade of such goods outside national
boundaries.

 International Market: When the demand for the product is international and the goods
are also traded internationally in bulk quantities, we call it an international market.

On the Basis of Time

 Very Short Period Market: This is when the supply of the goods is fixed, and so it cannot
be changed instantaneously. Say for example the market for flowers, vegetables. Fruits
etc. The price of goods will depend on demand.

 Short Period Market: The market is slightly longer than the previous one. Here the
supply can be slightly adjusted.

 Long Period Market: Here the supply can be changed easily by scaling production. So it
can change according to the demand of the market. So the market will determine
its equilibrium price in time.

On the Basis of Nature of Transaction

 Spot Market: This is where spot transactions occur, that is the money is paid
immediately. There is no system of credit

 Future Market: This is where the transactions are credit transactions. There is a promise
to pay the consideration sometime in the future.

On the Basis of Regulation

 Regulated Market: In such a market there is some oversight by appropriate government

authorities. This is to ensure there are no unfair trade practices in the market. Such
markets may refer to a product or even a group of products. For example, the stock
market is a highly regulated market.

a. Unregulated Market: This is an absolutely free market. There is no oversight or

regulation, the market forces decide everything

Other markets:

Retail market, Regulated market, Spot Market, Wholesale market

A wholesale market is where firms sell huge quantities of goods to distributors or other
intermediaries.

Types of Market Structures

We can characterize market structures based on the competition levels and the nature of

these markets. Let us study the four basic types of market structures.
A variety of market structures will characterize an economy. Such market structures essentially
refer to the degree of competition in a market. There are other determinants of market
structures such as the nature of the goods and products, the number of sellers, number of
consumers, the nature of the product or service, economies of scale etc. We will discuss the
four basic types of market structures in any economy.

One thing to remember is that not all these types of market structures actually exist. Some of
them are just theoretical concepts. But they help us understand the principles behind the
classification of market structures.

1] Perfect Competiton

In a perfect competition market structure, there are a large number of buyers and sellers. All
the sellers of the market are small sellers in competition with each other. There is no one big
seller with any significant influence on the market. So all the firms in such a market are price
takers.

There are certain assumptions when discussing the perfect competition. This is the reason
a perfect competition market is pretty much a theoretical concept. These assumptions are as
follows,

 The products on the market are homogeneous, i.e. they are completely identical

 All firms only have the motive of profit maximization

 There is free entry and exit from the market, i.e. there are no barriers

 And there is no concept of consumer preference

2] Monopolistic Competition

This is a more realistic scenario that actually occurs in the real world. In monopolistic
competition, there are still a large number of buyers as well as sellers. But they all do not sell
homogeneous products. The products are similar but all sellers sell slightly differentiated
products.
Now the consumers have the preference of choosing one product over another. The sellers can
also charge a marginally higher price since they may enjoy some market power. So the sellers
become the price setters to a certain extent.

For example, the market for cereals is a monopolistic competition. The products are all similar
but slightly differentiated in terms of taste and flavours. Another such example is toothpaste.

3] Oligopoly

In an oligopoly, there are only a few firms in the market. While there is no clarity about the
number of firms, 3-5 dominant firms are considered the norm. So in the case of an oligopoly,
the buyers are far greater than the sellers.

The firms in this case either compete with another to collaborate together, They use their
market influence to set the prices and in turn maximize their profits. So the consumers become
the price takers. In an oligopoly, there are various barriers to entry in the market, and new
firms find it difficult to establish themselves.

The cellular industry is a classic example of Oligopoly. In the cellular industry there are 3-5
dominant firms (Airtel, Vodafone, Jio etc). These are the price setters. And consumers have a
limited choice between these few choices.

4] Monopoly

In a monopoly type of market structure, there is only one seller, so a single firm will control the
entire market. It can set any price it wishes since it has all the market power. Consumers do not
have any alternative and must pay the price set by the seller.

Monopolies are extremely undesirable. Here the consumer loose all their power and market
forces become irrelevant. However, a pure monopoly is very rare in reality.
REFERENCES:

Market: What is a Market and Classification of Markets with Examples (toppr.com)

Types of Market Structures: Oligopoly, Monopoly, Perfect Competition etc. (toppr.com)

Forms Of Markets - Economics Project (hscprojects.com)