Classification of Markets | Economy

In this article we will discuss about the classification of markets.

1. Area served:

Markets may be classified into three types on the basis of the area covered—local, national and international. The markets for perish­able commodities like fresh vegetables, milk or fish are local in character, as they serve a small area.

There are some commodities which are bought and sold, more or less at the sample price, all over the country, e.g., cloth, sugar, standardised goods, paper, drugs, etc. The markets for these goods are national in character. Again, the markets for gold, silver, jute-goods, tea and for a few important commodities are international, as buyers and sellers of the different countries of these goods are in contact with one another.

2. Nature of commodities:

Markets may also be classified according to the nature and class of commodities dealt with. The markets for the staple commodities like rice, raw cotton, jute, metals, etc., are known as produce market or produce exchange.

There is another type of market known as the share market or the stock exchange (e.g., Calcutta or Mumbai Stock Ex­change) where the shares of different companies are bought and sold. Again, there are foreign exchange markets which are concerned with buying and selling of foreign currencies. These are some specialised markets.

3. Length of time-period:

Alfred Marshall has classified markets on the basis of the length of the time-period taken into consideration.

From this point of view he has mentioned four kinds of markets:

(a) The very short-period market:

The very short-period market is that one in which the supply of a commodity remains absolutely fixed. The markets of perishable commodities like fish, vegetables, etc. are of very short period, as these goods are to be sold within a few days. Here, the quantity supplied is perfectly inelastic.

(b) The short-period market:

In the short-period market, the quantity supplied of a commodity is limited by the stock in hand. Moreover, in such a market the quantity supplied can be increased to some extent through the full utilisation of the existing tools and equipment which remain fixed.

(c) The long-period market:

In such a market, the quantity offered for sale can be increased by changing the scale of production and so the supply will be influenced by the cost of producing the commodity in question.

(d) The very long-period market:

In the very long-period market, the length of time-period becomes so long that the far-reaching changes (i.e., changes in the tastes and preferences of the buyers, changes in population and in the factors affecting its growth, new discoveries and inventions, etc.) take place to affect both demand and supply appreciably. Such a period is called secular period.

4. Perfect and Imperfect Markets:

On the basis of the nature intensity of competition markets may be classified into the following categories:

(a) Perfect Markets:

For a market to become perfect, some conditions are to be fulfilled:

(i) A large number of buyers and sellers,

(ii) An identical product of all the sellers,

(iii) Perfect knowledge of buyers and sellers regarding the market conditions including the price,

(iv) The complete of control of an individual seller or buyer over the market supply and price,

(v) Free mobility of the factors of production,

(vi) A close contact between buyers and sellers,

(vii) No preferential treatment to any buyer, etc.,

The conditions in most actual markets are far from perfect, but some markets (e.g., markets of agricultural and mineral products like paddy, jute, oilseeds, iron ores, coal, etc.) and some goods (like company shares, bonds, deben­tures etc.), are more nearly perfect than others. The purely competitive model is useful for the purpose of analysis of market relationships that exist in more complex situations.

(b) Imperfect Market:

The market of a commodity becomes imperfect in the absence of any of the conditions of a perfect market. So, in an imperfect market there are only a few buyers or a few sellers. Their products are not identical. There is no perfect knowledge of buyers and sellers regarding the price.

So there may exist different prices for the same product. There may also exist buyers’ preference for the product of a particular seller. Buyers and’ sellers are not in close touch with one another. In the real commercial world the markets for most products are imperfect.

5. Nature and degree of competition:

Markets are also classified on the basis of nature and degree of competition with reference to the number of sellers and buyers and the nature of the product supplied by each seller.

Accordingly, the markets are classified as:

(a) Monopoly:

The situation of one single seller or one dominant pro­ducer in a product or a service which has no close substitutes (e.g., manu­facturing of jeeps or of newsprint by a single concern in our country, the Calcutta Electric Supply Corporation, the P & T Department etc.).

(b) Duopoly:

The situation of two firms with identical or differentiated product (i.e., manufacturing of bus chasis or conveyor v-belts, or even instant coffee by two leading firms in our country).

(c) Oligopoly:

A situation in which the number of firms is sufficiently small so that there is natural interdependence among them, and their products (or services) may be identical (e.g., the supply of petrol by a few firms) or differentiated (e.g., manufacturing of motor cars or of baby-food or of sewing machines by a few concerns in different names).

(d) Pure or perfect competition:

The market of a large number of buyers and sellers in an identical product (e.g., the market of agricultural and mineral products like paddy, jute, wheat, cotton, fibre, oilseeds, coal, iron ores, etc.) or as found in the stock market or foreign exchange market.

(e) Monopolistic competition:

The market of sufficiently large number of firms with differentiated products (e.g., manufacturing of toothpastes, bread, electric bulbs, soaps and detergents, blades, etc. by a large number of firms in different brand-names and trademarks).

(f) Monopsony:

The market of a single buyer having influence upon price but many or a few sellers (e.g., the buying of railway materials by the Indian Railways from a large number of concerns).

(g) Oligopsony:

A market situation of only a few buyers but many or a few sellers.

(h) Bilateral monopoly:

The market of a single producer and a single buyer, i.e., monopoly in both buying and selling market (e.g., the manufac­turing of telephone cables by the Hindustan Cables Factory and the buying of the cables by the Posts and Telegraphs Department of the Government of India) or labour markets where wages are fixed by collective bargaining.

The major varieties of market are listed in Table 1.