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DEFINITION & MEANING OF MARKET IN ECONOMICS | MARKET

Meaning of Market

Meaning of Market? We have deliberately refrained from defining the term “market.” It should be apparent that it too is an elusive concept. The economist uses the word “market” to describe the process of exchange. It is, however, a process that always involves the following elements:

“a good or service (or some group of goods or services), buyers, sellers, area (place), and time”

MEANING OF MARKET

we can express the meaning of market from the above definition and we can go without difficulty. As we know that But the definitions of competitive and noncompetitive conditions given before require that we draw up specifications for each of the elements in the market process for each market that we wish to examine. For example, monopoly was said to be a situation in which only one supplier operates in the market. Here is a town in which there is only one supplier of new lumber and lumber products. Is this supplier a monopolist? The answer depends on how the market is defined. Market as area. If the commodity exchange is limited to new lumber and lumber products and if the area is permitted to embrace only the town itself, this supplier could be described as a monopolist. However, if the area specification were changed to recognize the fact that suppliers in neighboring communities can also sell in this town, this one dealer could not be described as a monopolist. In the buying and selling of some good or service where transportation costs are relatively low (as in the buying and selling of insurance), the market area may actually embrace a whole country or even a large part of the world. Even in the marketing of bulky commodities like steel and steel products, suppliers from all over the world may be in active competition with one another. This illustrates the importance (and difficulty) of drawing up area specifications for each market under study.

Market as commodity. Again, if the commodity specifications for the market under discussion were changed to read, “building supplies,” the new lumber dealer could be seen to face competition from the sellers of other products that are directly competitive with new lumber in many uses—the suppliers of used lumber, brick, concrete and concrete blocks, for example. Aluminum competes with plywood’s, veneer woods, and light steels; California oranges compete with Florida grapefruit; milk is in competition with a dozen other beverages; trucks vie with railroads, ships, and airplanes; new cars are in competition with second-hand cars. This competition of substitutes reduces the significance of the much publicized findings regarding the high degree of concentration in various industries. This kind of competition effectively limits the ability of many so called “noncompetitive” firms to exploit the consumer.

Market as time. Finally any realistic description of market behavior in the United States today requires recognition of the role that time plays in managerial decisions. A firm may have a complete monopoly in a market (in the area or the commodity sense) and yet refuse to exploit its advantage because of its knowledge that entry into the market is very easy and that the charging of a high price will soon bring this about. It defends its monopoly position by acting as though it were operating in a purely competitive market. Or it has a legalized monopoly—through a patent, for example, but hesitates to charge all that the traffic will bear because of its knowledge that this will encourage research by other firms directed at discovering new and superior processes not covered by its patents. With a large investment in specialized plant and equipment and with perhaps a still larger investment in the research on which its patent rights are based, it is convinced that the only way to protect this investment is to keep the price of its product as low as possible. This type of behavior is all the more likely if the market demand for the product is highly elastic. The term potential competition is used to describe such situations as these.

We shall have occasion to return to this discussion later. At this time it is important only to warn the reader that the phrase, “the market for a good,” requires specific definition whenever it is to be used in analyzing actual behavior or as a guide to public policy.

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