What is a Market? Explains about Markets and their types

1. Unit – IV
B.TECH (CSE/ECE/MECH) III Yr
MANAGERIAL ECONOMICS AND FINANCIAL ANALYSIS

2.  Market is defined as a place or point at which
buyers and sellers negotiate their exchange
of well-defined products or services.
 A market is any place where the sellers of a
particular good or service can meet with the
buyers of that goods and service where there
is a potential for a transaction to take place.
The buyers must have something they can
offer in exchange for there to be a potential
transaction.

4.  On the basis of Competition Markets are
classified into two types
 (a) Perfect Competition
 (b) Imperfect Competition
 Perfect Competition: It is a market where there
exist large number of sellers and buyers with
perfect competition
 Imperfect Competition: It is a market which is
further divided into:
 (a) Monopoly (b) Duopoly (c) Oligopoly (d)
Monopolistic Competition

5.  The following are the features of perfect
competition
 (i) Large Number of buyers and sellers
 (ii) Homogeneous Products or services
 (iii) Freedom to enter or exit the market
 (iv) Perfect information available to the buyers
and sellers
 (v) Perfect mobility of factors of production

6.  A competition is said to be imperfect when it is not perfect.
 In other words, when any or most of the above conditions do
not exist in a given market it is referred to as an imperfect
competition
 Based on the number of buyers and sellers, the structure of
market varies as below:
 ‘Poly’ refers to seller and ‘Psony’ refers to buyer.
 Imperfect competition markets are classified as:
 (a) Monopoly
 (b) Monopolistic Competition
 (c) Duopoly
 (d) Oligopoly
 (e) Monopsony
 (f) Duopsony
 (g) Oligopsony

7.  If there is only one seller, monopoly market is
said to exist.
 An extreme version of imperfect market is
monopoly.
 Here a single seller completely controls the
entire industry.

8.  Single firm dealing with a particular product
or service
 No close substitutes and no competitors
 Can decide either the price or quantity, not
both
 Monopoly may be created through statutory
grant of special privileges such as licenses,
permit, patent rights, and so on

9.  Inefficient allocation of resources – Restricts the
output of his product to increase the price and
maximize profits
 Exploitation of consumers – By charging higher prices
 Wide gap between rich and poor – No consideration
whether the consumer is rich or poor
 Unfair trade practices – blocking the entry of new
firms
 Restricted Output – to have a control over the price in
the market
 Restricted scope to R&D – since no threat doesn’t
take initiative to invest in research and development

10.  When large number of sellers produce
differentiated products, monopolistic
competition is said to exist.
 Products offered are close substitutes
 They are similar but not identical.
 A Product is said to be differentiated when its
important features vary.
 Example: Electrical Companies that
manufacture Air-conditioning with
differentiated feature of heating the room

11.  Duo means two; Poly means sellers.
 If there are two sellers, duopoly is said to
exist.
 For example; let’s assume that we have only
two soft drink manufacturing companies
like Pepsi and Coke this market is said
called Duopoly.
 Basic facilities for satellite communication
are presently provided by Mahanagar
Telephone Limited (MTNL) and Videsh
Sanchar Nigam Limited (VSNL)

12.  Another variety of imperfect competition is
oligopoly
 ‘Oligo’ means few and ‘poly’ means
sellers. Oligopoly refers to few sellers
 The examples are the car manufacturing
companies such as (Maruti-Suzuki,
Hindustan Motars, Daewoo, Toyota and so
on. )Newspapers such as (The Hindu,
Indian Express etc..)

13.  ‘Psony’ refers to buyer, ‘Mono’ refers to single, ‘Duo’
refers to two, ‘Oligo’ refers to few’
 Monopsony - If there is only one buyer, monopsony
market is said to exist. Food Corporation of India is the
only government orgnisation that purchases the
agricultural produce such as rice and so on.
 Duopsony – If there are two buyers, dupsony is said to
exist
 Oligopsony – If there are few buyers, oligopsony is said
to exist. For example: There are quite good number
of computer assembly operators who buy the computer
components on wholesale basis

14. Thank You