There are
two aspects on which the whole market functions – demand and supply. These are
inter-dependent and without the existence of even one of these, the market
would collapse. So, what is market? Market is basically a region or area where
the byers and sellers come in contact which each other in an effort to make a
sale or a purchase. But there isn’t only one form market where this process
takes place. A market has various forms with a variety of different functions.
Different commodities are served under different types of market. Let’s have a
look at few of them.
PERFECT
MARKET
This is the
type of market that doesn’t really exist in reality. A situation where there is
a very large number of buyers and sellers dealing in homogenous products whose
prices are fixed by the market. Because it is quite difficult to sell a product
at a fixed rate throughout its sales because of numerous sellers available,
this market is very rare, but the closest example could be the agricultural
grains offered in the market like wheat and rice.
One
important fact is that only homogenous product exists in this market. This
means that only those products that are similar in nature will be available
here so that the demand and supply fluctuates leading to a constant change in prices.
IMPERFECT
MARKET
MONOPOLY
This is a
market where only a single seller exists and there is no other competition
because his product doesn’t have any other substitutes. The word ‘monopoly’ is
derived from the Greek word ‘monos’ meaning single and ‘polus’ meaning seller.
A perfect example for this would be the railways in India. There is only
one platform in India that sells tickets for train travels and that is the
IRCTC. It doesn’t have any other competition because there is no other
substitute available for this.
Also, there
are some strong barriers that are made up in this market for a new firm to
enter. This gives the existing firm even more power and therefore, they are the
only ones who get to decide the prices of the commodities. Now because there is
no other substitute, the consumer will have to purchase the commodity at
whatever price it is available.
MONOPOLISTIC
This one is
kind of a mixture of both the above markets. This is a market where there are
large number of firms available who sell products that are closely related but
not exactly the same. Basically, it is the type of market we witness every day.
For example,
soap, toothpaste, shampoo and more. These are the type of products that do have
substitutes, but they are not the same due to the brand.
So, this
market is both perfect market and monopoly market. Here is how. Let’s talk
about toothpaste. There are loads of brands available in the market for this
like Pepsodent, Colgate, Sensodyne etc.. this shows that this market has the
freedom of entry and is full of competition. On the other hand, each product is
different. Even though they are all toothpastes, they are differentiated on the
basis of their brands and their functions.
OLIGOPOLY
Now this is
a market that has a few big sellers who sell homogenous as well as
differentiated products. This market is a mix of monopolistic and monopoly. The
word ‘oligopoly’ was derived from the Greek words ‘oligi’ meaning few and
‘polein’ meaning sell. In India, one of the biggest examples of such market
is automobiles industry. There are various big brands available in the market
who are all selling cars but with different features. Also, these brands are
inter-dependent which means that a change in the price of one firm will lead to
a change in the price of another.
For
instance, if Honda reduces its price by 2% then Maruti will have to reduce its
prices as well since the consumers will be more inclined towards Honda if they
don’t.
Also, since
it is a market of big sellers, there barriers over here as well for a new firm
to enter. The competition would be extremely high.
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