Markets

What is a market?
• Market is a network of dealings in products or
factors between buyers and sellers
• It could be a place, mode of communication i.e.
internet, phone etc
• Markets need not have physical location. For e.g.
Over the counter markets, stock exchanges etc.
 Based on competition
1. Perfect competition: infinite firms, homogenous products,
large number of buyers. (A form rarely existed in reality)

2. Monopoly: Single seller. Could be due to natural or legal

factors. (OPEC, Indian Railways)

3. Monopolistic: Large number of buyers and sellers, same

but differentiated products, selling activities.

4. Oligopoly: Small number of big sellers. Concepts like game

theory can be applied to these markets. (More close to
reality)
 Based on nature of products

• Product markets: Market for final goods and services

• Factor markets: Market for factors of production. For

e.g. Labor Market, Capital Market etc.
• Monopoly in product market leads to monopsony (i.e.
only one buyer) in factor market.
(Oligopoly/oligopsony i.e. few buyers)
1. Capital markets: Market for capital
instruments/assets. For e.g. stock, bond market
2. Commodity markets: Market for commodities.
For e.g. Commodity Exchanges
3. Foreign exchange markets: Market for
currencies. Generally organized through
computer networks, functions round the clock.
• Spot Market: Market for immediate delivery.
For e.g. spot stock, bond, forex markets.
• Derivative Markets: Market for derivative
instruments. For e.g. forward/futures and
options markets in share, commodity and
currency markets. It is for delivery on a future
date.
• Primary market: Initial issue of securities. For
e.g. IPOs in stocks, issue of Govt. securities.
First point of transaction between issuer and
investor.
• Secondary market: Subsequent transaction in
issued securities among investors. For e.g.
stock market transaction in issued securities.
 Based on type of trading mechanism
• Order driven market: Anonymous order matching of public
orders. For e.g. NSE, NYSE

• Quote driven market: Dealers quote the prices. For e.g.

NASDAQ

• Brokered market: Brokers bring two parties for transaction.

Block/bulk deal section

• Hybrid market: Combination of all features for e.g. quote and

order driven markets. For e.g. NYSE specialists, NASDAQ market
makers.
 Type of execution

• Call Markets: Market functions only when

market is called. For e.g. NSE call auction,
primary issue of Govt. securities
• Continuous Markets: Continuous trading when
market is open. For e.g. almost all equity
exchanges.