Market Structure & Market
Classification
Lecture 02
Dr P Sivarajah
Senior Lecturer Gr.1/
Agricultural Economics
Eastern University, Sri Lanka
Market structure - Meaning:
Market structure refers to the size & design of the market.
1. Market structure refers to those organizational
characteristics of a market which influence the nature of
competition and pricing, and affect the conduct of business
firms;
2. Market structure refers to those characteristics of the
market which affect the traders behavior and their
performances;
3. Market structure is the formal organization of the functional
activity of a marketing institution. An understanding and
knowledge of the market structure is essential for identifying
the imperfections in the performance of a market.
Components of Market Structure:
The components of the market structure, which together
determine the conduct and performance of the market, are:
1. Concentration of market power:
2. Degree of product differentiation:
3. Conditions for entry of firms in the market:
4. Flow of market information:
5. Degree of integration: Dynamics of Market Structure –
Conduct and Performance (S-C-P)
The market structure determines the market conduct and
performance.
The term market conduct refers to the patterns of behavior of
firms, especially in relation to pricing and their practices in
adapting and adjusting to the market in which they function.
Specifically, market conduct includes:
• (a) Market sharing and price setting policies;
• (b) Policies aimed at coercing rivals; and (c) Policies towards
setting the quality of products. The term market performance
refers to the economic results that flow from the industry as
each firm pursues its particular line of conduct.
• Some of the criteria for measuring market performance and
efficiency of the market structure is needed.
For a satisfactory market performance, the market structure
should keep pace with the following changes:
• 1. Production pattern:
• 2. Demand pattern:
• 3. Costs and patterns of marketing functions:
• 4. Technological change in Industry:
Classification of Markets
Markets may be classified on the basis of each dimensions mentioned below.
1. Location: On the basis of the place of location or operation, markets are of
the following types:
• a) Village Markets: A market which is located in a small village, where major
transactions take place among the buyers and sellers of a village is called a
village market.
• b) Primary wholesale Markets: These markets are located in big towns near
the centers of production of agricultural commodities. In these markets, a
major part of the produce is brought for sale by the producer-farmers
themselves.
• c) Secondary wholesale Markets: These markets are located generally in
district headquarters or important trade centers or near railway junctions.
The major transactions in commodities take place between the village
traders and wholesalers. The bulk of the arrivals in these markets is from
other markets.
• d) Terminal Markets: A terminal market is where the produce is either
finally disposed of to the consumers or processors, or assembled for export.
Commodity exchanges exist in these markets, which provide facilities, for
forward trading in specific commodities. Such markets are located either in
metropolitan cities or in sea-ports
• e) Seaboard Markets: Markets which are located near the seashore and
are meant mainly for the import and/or export of goods are known as
seaboard markets.
2. On the Basis of Area/Coverage:
On the basis of the area from which buyers and sellers usually come for
transactions, markets may be classified into the following four classes:
a) Local or Village Markets:
• A market in which the buying and selling activities are confined among the
buyers and sellers drawn from the same village or nearby villages. The
village markets exist mostly for perishable commodities in small lots.
• b) Regional Markets: A market in which buyers and sellers for a commodity
are drawn from a longer area than the local markets. Regional markets in Sri
Lanka usually exist for food products.
• c) National Markets: A market in which buyers and sellers are at the
national level.
• d) World Market: A market in which the buyers and sellers are drawn from
the whole world. These are the biggest markets from the area point of view.
These markets exist in the commodities, which have a worldwide demand
and or supply such as coffee, machinery, gold, silver etc.
• The storage facility, transportation preservation and processing techniques
used can enhance the area dimension of market for a commodity. e.g.
mushroom local to wider area by dehydration; milk -pasteurization
enhances the area dimension from local to regional.
3. On the Basis of Time Span: On this basis, markets are of the
following types:
a) Short-period Markets: The markets which are held only for
a few hours are called short-period markets. The products
dealt within these markets are of highly perishable nature,
such as fish, fresh vegetables, and liquid milk.
b) Long-period Markets: These markets are held for a long
period than the short period markets. The commodities
traded in these markets are less perishable and can be stored
for some time; these are food grains and oilseeds. The prices
are governed both by the supply and demand forces.
• c) Secular Markets: These are markets of permanent nature.
The commodities traded in these markets are durable in
nature and can be stored for many years. Examples are
markets for machinery and manufactured goods
4. On the Basis of Volume of Transactions:
• There are two types of markets on the basis of volume of
transactions.
• a) Wholesale Markets: A wholesale market is one in which
commodities are bought and sold in large lots or in bulk.
Transactions in these markets take place mainly between
traders.
• b) Retail Markets: A retail market is one in which commodities are
bought by and sold to the consumers as per their requirements.
Transactions in these markets take place between retailers and
consumers. The retailers purchase in wholesale market and sell in
small lots to the consumers. These markets are very near to the
consumers
5. On the Basis of Nature of Transactions:
• The markets which are based on the types of transactions in which
people are engaged are of two types:
• a) Spot or Cash Markets:
• A market in which goods are exchanged for money immediately after
the sale is called the spot or cash market.
• b) Forward Markets: A market 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
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.
6. On the basis of number of Commodities in which
transaction occur:
• 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 food grains, oilseeds, fiber crops, gur, etc., are bought and sold 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 are food
grain markets, vegetable markets, wool market and cotton market
7. 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. On the basis of competition, markets may be classified into
the following categories:
1. Perfect Markets:
A perfect market is one in which the following conditions hold good:
a) There is a large number of buyers and sellers;
b) All the buyers and sellers in the market have perfect knowledge of
demand, supply and prices;
c) Prices at any one time are uniform over a geographical area, plus or
minus the cost of getting supplies from surplus to deficit areas;
d) The prices are uniform at any one place over periods of time, plus or
minus the cost of storage from one period to another;
e) The prices of different forms of a product are uniform, plus or minus
the cost of converting the product from one form to another.
2. Imperfect Markets:
The markets in which the conditions of perfect competition are
lacking are characterized as Imperfect Markets. The following
markets based on the degree of imperfection, may be identified:
a) 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 commodity is generally
higher than in other markets. When there is only one buyer of a
product the market is termed as a monopsony market .
b) Duopoly Market: A duopoly market has only two sellers of a
commodity. They may mutually agree to charge a common price which
is higher than the price in a common market. This market situation, with
only two sellers of a commodity is known as the Duopsony market.
c) 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.
d) Monopolistic competition: When a large number of sellers deal in
heterogeneous and differentiated form of a single 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 , various makes of
insecticides, pump sets, fertilizers and equipment.
