Markets are generally classified into product markets and factor markets. Product markets are markets for goods and services in which households buy the goods and services they want from firms. Factor markets, on the other hand, are those in which firms buy the resources they need – land, labour, capital and entrepreneurship- to produce goods and services. While product markets allocate goods to consumers, factor markets allocate productive resources to producers and help ensure that those resources are used efficiently. The prices in factor markets are known as factor prices.
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Classification of Market
In Economics, generally, the classification of markets is made on the basis of
- (a) Geographical Area
- (b) Time
- (c) Nature of transaction
- (d) Regulation
- (e) Volume of business
- (f) Type of Competition.
On the basis of geographical area
From the marketing perspective, the geographical area in which the product sales should be undertaken has vast implications for the firm. On the basis of geographical area covered, markets are classified into:-
Local Markets: When buyers and sellers are limited to a local area or region, the market is called a local market. Generally, highly perishable goods and bulky articles, the transport of which over a long distance is uneconomical’ command a local market. In this case, the extent of the market is limited to a particular locality. For example, locally supplied services such as those of hairdressers and retailers have a narrow customer base.
Regional Markets: Regional markets cover a wider area, such as a few adjacent cities, parts of states, or clusters of states. The size of the market is generally large and the nature of buyers may vary in their demand characteristics. For eg. Mekhela Chador (Traditional Assamese Saree) is primarily worn by women in Assam and adjoining areas.
National Markets: When the demand for a commodity or service is limited to the national boundaries of a country, we say that the product has a national market. The trade policy of the government may restrict the trading of a commodity to within the country. For example, Hindi books may have national markets in India; outside India, one may not have a market for Hindi books.
International markets: A commodity is said to have a global market when it is exchanged internationally. Usually, high-value and small bulk commodities are demanded and traded internationally. For example Gold and Silver are examples of commodities that have international market.
The above classification has become more or less outdated as we find that in modern days, even highly perishable goods have an international market.
On the basis of Time
Alfred Marshall conceived the ‘Time’ element in markets, and on the basis of this, markets are classified into:
Very short period market: Market period or very short period refers to a period in which supply is fixed and cannot be increased or decreased. Commodities like vegetables, flowers, fish, eggs, fruits, milk, etc., which are perishable and the supply of which cannot be changed in a very short period, come under this category. Since supply is fixed, a very short period price is dependent on demand. An increase in demand will raise the prices and vice versa.
Short-period Market: A short period is a period that is slightly longer than a very short period. In this period, the supply of output may be increased by increasing the employment of variable factors with the given fixed factors and state of technology. Since supply can be moderately adjusted, the changes in the short-period prices on account of changes in demand are less compared to the market period.
Long-period Market: In the long period, all factors become variable, and the supply of commodities may change by altering the scale of production. As such, supply may be fully adjusted to changes in demand conditions. The interaction between long-run supply and demand determines the long-run equilibrium price or ‘normal price’.
A very long period or secular period is one in which secular movements are recorded in certain factors over some time. The period is very long. The factors include the size of the population, capital supply, supply of raw materials, etc.
On the basis of the Nature of Transactions
a. Spot or cash Market: Spot transactions or spot markets refer to those markets where goods are exchanged for money, payable either immediately or within a short period. For example, grains sold in the Mandi at the current prices and cash is payable immediately are thus part of Spot Market.
b. Forward or Future Market: In this market, transactions involve contracts with a promise to pay and deliver goods at some future date. For example, the purchase of a foreign currency contract at a future rate from the bank.
On the basis of Regulation
a. Regulated Market: In this market, transactions are statutorily regulated so as to put an end to unfair practices. Such markets may be established for specific products or a group of products, such as the stock exchange.
b. Unregulated Market: It is also called a free market as there are no stipulations for transactions. For example. Weekly markets (Haat Bazaar).
On the basis of the volume of Business
a. Wholesale Market: The wholesale market is the market where the commodities are bought and sold in bulk or large quantities. Transactions generally take place between traders. i.e. Business to Business (B2B).
b. Retail Market: When the commodities are sold in small quantities, it is called a retail market. This is the market for ultimate consumers i.e. Business to Consumer (B2C).
On the basis of Competition
Based on the type of competition, markets are classified into
- a) a perfectly competitive market and
- b) imperfectly competitive market.
