Essay on Markets: Top 4 Essays | Economics

In this essay we will discuss about:- 1. Meaning of Markets 2. Features of the Markets 3. Elements 4. Performance.

Essay on Markets  

---

Essay # 1. Meaning of Markets:

The term market structure refers to the type constituents and nature of an industry. It includes the relative and absolute size of firms, active in industry, easiness in the entry into business, the demand curve of the firm products etc.

There are two extremities of the market structure on this basis, on one end there is a market of perfect competition and on the other perfect monopoly market. In between these two extremities there are monopolistic competition, oligopoly, duopoly etc.

In common usage the word market designates a place where certain things are bought and sold. But when we talk about the word market in economics, we extend our concept of market well beyond the idea of single place to which the householder goes to buy something. For our present purpose, we define a market as an area over which buyers and sellers negotiate the exchange of a well- defined commodity. For a single market to exist, it must be possible for buyers and sellers to communicate with each other and to make meaningful deals over the whole market.

Several economists have attempted to define the term market as used in economics.

Some of them are as under:

According to Curnot, “Economists understand by the term market not any particular market-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.”

In the eyes of Prof. Chapman, “The term market refers not necessarily to a place but always to a commodity and the buyers and sellers who are to direct competition with one another”.

In simple words, the term market refers to a structure in which the buyers and sellers of the commodity remain in close contact.

---

Essay # 2. Features of the Markets:

On the basis above-mentioned definitions we can mention following main features of the market:

(i) Commodity:

For the existence of market, a commodity- essential this is to be bought and sold. There cannot be a market without commodity.

(ii) Buyers and Sellers:

Buyers and sellers are also essential for market. Without buyers and sellers the sale-purchase activity cannot be conducted which is essential part of a market.

(iii) Area:

There should be an area in which buyers and sellers of the commodity live in. It is not essential that the buyers and sellers should come to a particular place to transact the business.

(iv) Close Contact:

There should be close contact and communication between, buyers and sellers. This communication may be established by any method. For example, in olden days this contact and communication was possible only when the buyers and sellers of a particular commodity could come at a particular place.

But now with the developed means of communication physical presence of buyers and sellers at one particular place is not essential. They can contact with, each other through letters, telegrams, telephones, etc. In the boundary of a market we include only those buyers and sellers who can maintain regular close contacts.

For instance, India’s farmers (or sellers of grains) have no close contacts with the consumers (or buyers) of England, hence though they are the buyers and sellers of grains yet do not come under the purview of a market.

(v) Competition:

There should be some competition among buyers and sellers of the commodity in a market.

---

Essay # 3. Elements of Market Conduct:

(a) Seller and Buyer Concentration:

Here, seller concentration means in certain industry the number of active firms is very limited and these few firms produce a large part of the total supply. In other words, there firms possess the market power in a sense that any one of these firms can affect the market price by making change in the quantity of its product.

In full competition, each firm produces a very small part of the total production. Hence, it cannot affect the market price. In this type of market, the seller concentration is zero. So, as we move from the perfect competitive market towards pure monopolist market, the quantity of seller concentration increases.

(b) Market Power:

Every competitive firm attempts to get market power by making difference in the product. From economic point of view difference in the product or product heterogeneousness affects the market, structure significantly. In the position of homogeneous product when a seller makes even a slight change in the price of product the consumers begin to purchase the product sold by other producers.

In other words the firm producing homogeneous product has to face the perfectly elastic demand curve. On the contrary in the position of heterogeneous products any single firm can increase some price without being affected due to the preferences of the consumer.

(c) Product Differentiation:

In the perfect competition market all firms sell the same or homogeneous product. But in the market, in reality a single product is sold by the different producers, claiming that all products (such as toothpaste) are not same. The producers bring variety by means of brand name, packaging, size, colour, taste, weight etc. In spite of no locational differences, variety is seen by means of retailer service, home delivery, credit facility etc.

(d) Barriers in Entry:

Seller’s concentration indicates that how some firms acquire dominance in an industry, consequently the real competition between the firms is lessened or limited. If there are some barriers in the entry of new firms, then the prospective competition is also limited.

The types of such barriers are as follows:

(i) Cost profit to the present firm which is not available to the new firms.

(ii) Legal barriers in entry.

(iii) Product difference and advertisement etc. cause the presence of strong preference among consumers for the products sold by the established firms.

(e) Other Elements:

Apart from these main elements, there are some other elements to be considered. One of them is the growth rate of market demand. In this situation the firms are somewhat idle. On the contrary in a rapidly growing industry the firms also become more competitive. In the growing market every firm is struggling and striving for more demand.

If there is more elasticity of the price demand of a product, the firm will be motivated to lessen the price in order to increase ones portion in the total sale. In the condition of oligopoly when a firm decreases price other firms also do the same. Then all firms derive benefit in the condition of more elastic demand. If the product demand is inelastic no firm will tend to change price.

---

Essay # 4. Market Performance:

Market performance means the evaluation of the derivation of the behaviour of any industry when it behaves differently than the established superior laws of the market. It is assumed that in the position of the perfect competition only an industry can perform well. But when the market is derivated from the condition of perfect competition, then the market behaviour also changes. Now the question arises, as to how a market performance can be evaluated in any industry?

Certain acceptable indicators are as follows:

1. Profitability:

All firms have an objective like profitability, profit maximisation or satisfactory level of profit. But profitability in any industry does not depend only upon the performance of the firm. It also depends upon monopolist power, product diversity, or inefficient use of resources etc. Economists have used the hypothesis of normal profit. It is the rate of profit which makes the firm not to leave the industry. The performance level affects the quantity of profit significantly.

2. Productivity:

It is an index of production of per unit input used, if more production is possible by the same units then there is growth in productivity. Growth in production is an indicator of efficient performance of an industry.

But this index is also not without practical shortcomings. Till we cannot keep the other factors stable, it is difficult to measure productivity of certain means/ inputs, like labour on capital. Besides this the units of labour, capital, or land are heterogeneous, so when a change occurs in the quantity of an input, there is also a change in its quality. For example when we recruit more workers, first we recruit more skilled ones and then the less skilled.

3. Growth:

Information about the performance of an industry can be derived from its growth rate also. The measure of growth rate of an industry can be known from the product, employment and wealth creation. But every index creates problems in measuring the performance.

For example, it is possible that in an industry more and more people get employment, or there is a rapid rate of wealth accumulation. But it is also possible that the resources are not efficiently used. Likewise when the growth rate is high we do not have information of production cost, whether it is more or less.

4. Effect on Index:

Now the question arises whether the market structure affects the indexes of market performance. Profitability is one of the many indicators of performance. For example in perfect competition, a firm earns normal profit in long term while in monopoly or market having monopolist power, the firm earns extra-normal profit in long term also.

Excessive seller concentration, barriers in entry and product difference can make firm earn more profit in long term also. Likewise we take growth index. Both in monopoly and oligopoly markets firm produces less than its capacity or there is a position of extra capacity.

5. Ill Effects on Firm Growth:

Thus, the growth of the firm is affected adversely. Productivity and efficiency are associated with each other. In the position of monopoly and oligopoly a firm has extra capacity which means inefficient use of resources and low level of productivity. Lastly, the social performance of a firm is also affected by market structure. In monopoly and perfect competition, consumer and labour, both are exploited. Growth in competition decreases the power of exploitation of the producers.

6. Social Performance:

The performance level of an industry can be evaluated in the item of many social bases. These social bases can be income redistribution or other indicators of social welfare. For example the social performance of the medicine industry can be measured by the decrease in the illness period or death rate.

If the expansion/growth of any industry results in decrease of present inequalities of income in society, or it helps in reducing poverty or unemployment then the performance level of the industry can be called high.

Market Structure Conduct Performance Interrelations: 

In micro economics the equilibrium of the firm and industry is studied. On the contrary industrial economics is more related to change in market structure, resulting in the changes of market behaviour or firm’s behaviour, which ultimately affect their market performance. So, industrial economics can be studied with the help of structure conduct performance approach or model.

Complexity of Interrelations:

According to the economists, the interrelations between the structures, conduct performance are sufficiently complex. To conclude it can be said that market structure affects the behaviour of a firm and behaviour of a firm affects its performance (profitability) in the market.

---