Market Definition: Components, Dimensions & Classification

The word market is derived from the Latin word ‘marcatus’ which means merchandise or trade or a place where business is conducted. However, a variety of experts have defined the market in their versions, and truly the word market as simple as it seems is filled with components and dimensions. A market can be a place where commodities are bought and sold, for example, a supermarket.

It can comprise potential buyers and sellers of a product, for example: a silk market or a cotton market. If we talk about a country or a region, the market can be potential buyers and sellers of a country or region, for example: European market, Asian market, Indian market, etc.

An organization that provides facilities for the exchange of commodities can also be called a market, for example, the New York Stock Exchange, Nasdaq, Bombay Stock Exchange, etc. That’s why there can be various meanings or definitions of the market according to different contexts. Here are some of the common definitions of market given by experts.

1. A market is the sphere within which price determining forces operate.

2. A market is the area within which the forces of demand and supply converge to establish a single price.

3. The term market means not a particular market place in which things are bought and sold but the whole of any region in which buyers and sellers are in such a free intercourse with one another that the prices of the same goods tend to equality, easily and quickly.

4. Market means a social institution which performs activities and provides facilities for exchanging commodities between buyers and sellers.

5. Economically interpreted, the term market refers, not to a place but to a commodity or commodities and buyers and sellers who are in free intercourse with one another.

6. The American Marketing Association has defined a market as the aggregate demand of the potential buyers for a product/service.

7. Philip Kotler defined market as an area for potential exchanges.

What Is A Market?

Define Market: In simple words we can define market in terms of the existence of fundamental forces of supply and demand and is not necessarily confined to a particular geographical location, it exists when buyers wishing to exchange money for a good or service are in contact with the sellers who are willing to exchange goods or services for money.

Components of a Market

Components of a market are necessary for a market to exist, that’s why these conditions is both necessary and sufficient.

1. The existence of a good or commodity for transactions (physical existence is not mandatory);

2. The existence of buyers and sellers;

3. Price at which the commodity is transacted or exchanged

4. Business relationship or intercourse between buyers and sellers; and

5. Demarcation of area such as place, region, country or the whole world.

Dimensions of a Market

There are various dimensions of a market. These dimensions are:

1. Location or place of operation

2. Area or coverage

3. Time span

4. Volume of transactions

5. Nature of transactions

6. Number of commodities

7. Degree of competition

8. Nature of commodities

9. Stage of marketing

10. Extent of public intervention

11. Type of population served

12. Accrual of marketing margins

Classification of Markets

Markets may be classified on the basis of these twelve dimensions which are listed above.

On the Basis of Location or Place of Operation

On the basis of the place of location or place of operation, markets can be further classified into five types:

(a) Village Market: Markets that are situated in a small village where the buying and selling of necessary goods for their daily use take place among the buyers and sellers of the villagers, are called a village market. Example of a village market: A local dairy shop in the village or a general store is an example of a village market.

(b) Primary Markets: Markets that are located in towns or near the centers of production of agricultural commodities are called primary markets. In these markets, a major part of the produce is brought for sale by the producer, i.e., farmers and the transactions usually take place between the farmers and primary traders.

(c) Secondary Wholesale Markets: Markets generally located near district headquarters or important trade centers or near railway junctions where the major transactions of commodities take place between the village traders and wholesalers are called secondary wholesale markets.

Products in this market are exchanged in bulk quantities, therefore, specialized marketing agencies performing different marketing functions, such as those of commission agents, brokers and weighmen are present in these markets. These markets help in assembling commodities from neighboring districts, tehsils or states.

(d) Terminal Markets: Markets where the produce is either finally disposed of to the consumers or processors, or assembled for export are called terminal markets. Merchants are well organized and use modern methods of marketing in a terminal market. In these markets, commodity exchanges take place which provide facilities for forward trading in specific commodities. Such markets are located either in metropolitan cities or at sea ports. Examples of Terminal Market: Mumbai, New York, New Delhi etc.

(e) Seaboard Markets: Markets that are located near the seashore and are based mainly on the import or export of goods are called seaboard markets. Examples of Seaboard markets are Mumbai, Chennai, Kolkatta, Los Angeles, etc.

On the Basis of Area or Coverage

On the basis of the area from which buyers and sellers usually come for transactions, markets may be classified into the four classes:

(a) Local or Village Markets: A market in which the buying and selling of usually perishable goods and services are confined among the buyers and sellers from the same village or nearby villages is called a local or village market. Examples of local or village markets are local milk markets or vegetable markets.

(b) Regional Markets: A market in which buyers and sellers for a commodity are from a larger area than the local markets is called a regional market.

(c) National Markets: A market in which buyers and sellers are at the national level. Earlier national markets existed only for durable goods like jute and tea. But as the road network expanded and transport and communication facilities improved, the markets for most of the products have taken the form of national markets.

(d) World or International Market: A market in which the buyers and sellers are from more than one country or the whole world. These are the biggest markets from the area’s point of view. These markets exist for the commodities that have a worldwide demand or supply, such as coffee, rice, machinery, gold, silver, etc.

On the Basis of Time Span

On this basis, markets are classified into four classes:

(a) Short-period Markets: Markets that are held only for a day or few hours are called short-period markets. The products exchanged in these markets are highly perishable, such as fish, fresh vegetables, and liquid milk. Prices of commodities are governed mainly by the extent of demand for the commodity, rather than by the supply of the commodity.

(b) Periodic Markets: The periodic markets are gathering of buyers and sellers at particular places either in villages, semi-urban areas or some parts of urban areas on specific days and times. Major commodities traded in these markets are the farm produce grown in the countryside. These periodic markets can be held weekly, biweekly, fortnightly or monthly according to the local traditions.

(c) Long-period Markets: Markets that are held for a longer period than the short-period markets are long-period markets. The commodities traded in these markets are less perishable and can be stored for some time such as foodgrains and oilseeds. The prices are governed both by the supply and demand forces in this market.

(d) Secular Markets: Markets that are of a permanent nature are secular markets. The commodities traded in these markets are durable and can be stored for many years. Examples of secular markets are markets for machinery and manufactured goods.

On the Basis of Volumes of Transactions

There are two types of markets on the basis of volume of transactions.

(a) Wholesale Markets: Markets in which commodities are bought and sold in bulk quantities are called wholesale markets. These markets are generally located in either towns or cities. Due to intensive economic activities around this market over time, the population tends to get concentrated around the regions in which these markets are located.

These markets occupy an extremely important link in the marketing chain of all the commodities including farm products. Apart from balancing supply and demand and the discovery of the prices of a commodity, these markets and functionaries serve as a link between the production system and consumption system.

(b) Retail Markets: Markets in which commodities are bought by and sold to the consumers as per their requirements are called retail markets. Transactions in these markets take place between retailers and consumers. The retailers purchase the goods from the wholesale market and sell them in small lots to the consumers in retail markets. These markets are very near to the consumers.

A retail market means that the buyers are generally ultimate consumers, whereas, in the wholesale market, the buyers can be wholesalers or retailers.

On the Basis of Nature of Transactions

Based on the nature of transactions, market can be classified into two types:

(a) Spot or Cash Markets: Markets in which goods are exchanged for money immediately after the sale are called the spot or cash market.

(b) Forward Markets: Markets in which the purchase and sale of a commodity takes place at time t but the exchange of the commodity takes place on some specified date in the future i.e., time t + 1. Sometimes even on the specified date in the future (t + 1), there may not be any exchange of the commodity. Instead, the differences in the purchase and sale prices are paid or taken.

On the Basis of Number of Commodities in which Transaction Takes Place

A market may be general or specialized on the basis of the number of commodities in which transactions are completed:

 (a) General Markets: A market in which all types of commodities, such as foodgrains, oilseeds, fibre crops, gur, etc., are bought and sole is known as general market. These markets deal in a large number of commodities.

(b) Specialized Markets: A market in which transactions take place only in one or two commodities is known as a specialized market. For every group of commodities, separate markets exist. The examples of specialized markets are foodgrain markets, vegetable markets, wool market and cotton market.

On the Basis of Degree of Competition

Each market can be placed on a continuous scale, starting from a perfectly competitive point to a pure monopoly or monopsony situation. Extreme forms are almost non-existent. Nevertheless, it is useful to know their characteristics. In addition to these two extremes, various midpoints of this continuum have been identified. On the basis of competition, markets may be classified into the following categories:

(a) Perfect Markets: A perfect market is one in which the following conditions hold good:
(i) There is a large number of buyers and sellers;
(ii) All the buyers and sellers in the market have perfect knowledge of demand, supply and prices;
(iii) Prices at any one time are uniform over a geographical area, plus or minus the cost of getting supplies from surplus to deficit areas;
(iv) The prices of different forms of a product are uniform, plus or minus the cost of converting the product from one form to another.

(b) Imperfect Markets: The markets in which the conditions of perfect competition are lacking are characterized as imperfect markets. The following situations, each based on the degree of imperfection, may be identified:

(i) Monopoly Market: Monopoly is a market situation in which there is only one seller of a commodity. He exercises sole control over the quantity or price of the commodity. In this market, the price of a commodity is generally higher than in other markets. Indian farmers operate in monopoly market when purchasing electricity for irrigation. When there is only one buyer of a product, the market is termed as a monopsony market.

(ii) Duopoly Market: A duopoly market is one which has only two sellers of a commodity. They may mutually agree to charge a common price which is higher than the hypothetical price in a common market. The market situation in which there are only two buyers of a commodity is known as the duopsony market.

(iii) Oligopoly Market: A market in which there are more than two but still a few sellers of a commodity is termed as an oligopoly market. A market having a few (more than two) buyers is known as oligopsony market.

(iv) Monopolistic Competition: When a large number of sellers deal in heterogeneous and differentiated form of a commodity, the situation is called monopolistic competition. The difference is made conspicuous by different trade marks on the product. Different prices prevail for the same basic product. Examples of monopolistic competition faced by farmers may be drawn from the input markets. For example, they have to chose between various makes of insecticides, pumpsets, fertilizers and equipments.

On the Basis of Nature of Commodities

On the basis of the type of goods dealt in, market may be classified into the following categories:

(a) Commodity Markets: A market which deals in goods and raw materials, such as wheat, barley, cotton, fertilizer, seed, etc., are termed as commodity markets.

(b) Capital Markets: The market in which bonds, shares and securities are bought and sold are called capital markets; for example, money markets and share markets.

On the Basis of Stage of Marketing

On the basis of the stage of marketing, markets may be classified into two categories:

(a) Producing Markets: Those markets which mainly assemble the commodity for further distribution to other markets are termed as producing markets. Such markets are located in producing areas.

(b) Consuming Markets: Markets which collect the produce for final disposal to the consuming population are called consumer markets. Such markets are generally located in areas where production is inadequate, or in thickly populated urban centres.

On the Basis of Extent of Public Intervention

Based on the extent of public intervention, markets may be placed in any one of the following two classes:

(a) Regulated Markets: These are those markets in which business is done in accordance with the rules and regulations framed by the statutory market organization representing different sections involved in markets. The marketing costs in such markets are standardized and, marketing practices are regulated.

(b) Unregulated Markets: These are the markets in which business is conducted without any set rules and regulations. Traders frame the rules for the conduct of the business and run the market. These markets suffer from many ills, ranging from unstandardised charges for marketing functions to imperfections in the determination of prices.

On the Basis of Type of Population Served

On the basis of population served by a market, it can be classified as either urban or rural market.

(a) Urban Market: A market which serves mainly the population residing in an urban area is called an urban market. The nature and quantum of demand for agricultural products arising from the urban population is characterized as urban market for farm products.

 (b) Rural Market: The word rural market usually refers to the demand originating from the rural population. There is considerable difference in the nature of embedded services required with a farm product between urban and rural demands. Rural markets generally have poor marketing facilities as compared to urban markets.

On the Basis of Market Functionaries and Accrual of Marketing Margins

Markets can also be classified on the basis of as to who are the market functionaries and to whom the marketing margins accrue. Over the years, there has been a considerable increase in the producers or consumers co-operatives or other organizations handling marketing of various products.

Though private trade still handles bulk of the trade in farm products, the co-operative marketing has increased its share in the trade of some agricultural commodities like milk, fertilizers, sugarcane and sugar. In the case of marketing activities undertaken by producers or consumers co-operatives, the marketing margins are either negligible or shared amongst their members. In some cases, farmers themselves work as sellers of their produce to the consumers.

On the basis, the market can be (a) farmers markets, (b) cooperative markets or (c) general markets.