Market refers to any place or location where a product is exchanged for money. The product referred to here may be a tangible good or an intangible service. Wherever a product is sold or bought, the location is called the market.
It does not necessarily require a particular geographical region. Instead, it could be a household, a roadside, a pavement, or even a street corner that may fit into the description of a market. It is a place where buyers and sellers meet to buy or sell their goods and services, generally for money.
Markets known for sale and purchase of particular commodities or services are known after them, for example, capital market, money market, stock market, car market, spare parts market, fruit market, vegetable market, etc.
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Such markets have specific locations so that buyers and sellers may get a fair deal for themselves conveniently. There are markets where prices are fixed and uniform throughout and there are markets where such certainties do not exist.
The former is called a perfect market while the latter, an imperfect market. In other words, a market with least or no price distortions is a perfect or a competitive market, while one with frequent price distortions is an imperfect market.
One of the causes responsible for such market imperfections is the existence of a single seller or single buyer who dictates price. The single seller is called the monopoly while a single buyer, the monopsony.
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The situation of two sellers is called duopsony, while that of two buyers, duopoly. A variant of duopoly is oligopoly in which number of sellers is more than two but limited to a few. Likewise, a variant of duopsony is oligopsony, in which the number of buyers is more than two but limited to a few.
The large number of monopoly sellers dealing with close substitutes, for example, different brands of toothpastes or those of cigarettes constitutes the monopolistic market or monopolistic competition.
The word ‘competitive’ emphasises that we are not dealing with ‘monopoly’ and the word ‘imperfect’ emphasises that we are not dealing with the ‘perfect competition’. The markets can thus be classified as follows:
