Types of Markets
Markets are places where goods and services are exchanged. A market is typically a combination of institutions, processes, systems or infrastructures through which parties engage in a transaction. Most markets, though, depend on buyers accepting goods and/or services in return for cash by bartering, while other markets rely on suppliers offering their products or services in return for payment.
In the traditional market system, the market size determines how much a buyer is willing to pay for a good. The larger the market size, the more buyers there are who are willing to trade goods and services. This implies that, in the presence of larger markets, prices of goods tend to be more stable and so they provide consumers with higher quality goods at lower prices. The size of a market also determines how many suppliers there are in the form of banks and other financial institutions as well as how many buyers are there for those goods.
Large-scale markets, though, provide the opposite effect. They tend to be highly unstable because their size creates barriers for potential purchases and they also provide opportunities for sellers to take advantage of unresponsive buyers. The result is that goods tend to be bought and sold at below-market prices. This is why goods in auctions tend to sell at very high prices: buyers are usually desperate to obtain the goods on the auction block, while sellers have no incentive to offer below-market prices because the sale of goods in auctions would bankrupt them.
Another important factor that determines the price of a good lies in the psychology of buyers and sellers. It is the psychology of the seller that determines the price of a good. If sellers feel confident that they can get away with undercharging the price of their good, they will usually do just that. Conversely, if sellers feel that buyers are prepared to pay the full price, sellers will usually do everything possible within their power to prevent this from happening. In most cases, the only way for sellers to prevent a buyer from paying more than the agreed upon amount is for them to force the buyer to buy goods that are of greater quality or to make the goods difficult to produce. However, if sellers feel that the potential buyer has the legal right to demand what is needed, then the seller may resort to all sorts of tactics in order to discourage the buyer from buying his goods.
The final type of market – the physical markets – reflect the nature of the buyer. Physical markets are places where buyers and sellers come together in the presence of money so that they can physically transfer money from one hand to another. Some physical markets exist on a strictly cash basis, while others are not based on cash at all. In the non-cash physical markets, buyers and sellers meet in order to determine the value of the goods that they have. Goods sold in physical markets are usually accompanied by a certificate of deposit (CD) and a receipt for payment.
The four types of markets that we have discussed in this article provide buyers and sellers with a framework through which to conceptualize and organize their interactions in the market place. By taking an economic approach, these examples provide buyers and sellers with a starting point from which to examine the nature of the exchanges that take place in their local markets. Through the use of this framework, buyers and sellers become more aware of the parameters under which they should enter into transactions and the means through which they can alter those transactions in order to gain more profit. By taking an economic approach, we also help people think more clearly about the roles that government intervention can play in making markets work better and more efficiently. By examining more closely the nature of the four types of markets, we can improve our understanding of the workings of the markets and develop more productive and economically beneficial practices in our day-to-day life.