Types of Market
A market is a place where buyers and sellers meet to exchange goods and services
Markets have a number of influences on businesses including:
- Market size
- Degree of competition within the market
- Type of market
Markets can be categorised by the degree of competition and the number of firms
Perfect competition
- This is a market with lots of small firms who produce similar products at similar prices
- No barriers to entry / exit
- Potential profits are low
Oligopoly
- Few firms in the market who are interdependent in their actions
- Firms consider competitors reactions when changing prices / introducing new products
- There is a high degree of competition
- Businesses try and avoid price competition preferring non price competition
- Can be many take-overs
- Collusion may occur leading to cartels being formed
Monopoly
- A single producer in the market
- One producer is able to charge relatively high prices
- New products are rarely introduced
- Resources are not used efficiently
- UK based monopolies are open to competition from overseas rivals
Capacity Utilisation
Capacity Utilisation is the extent to which a firm uses the productive capacity available to it.
Markets can experience shortages of capacity meaning consumer needs are not met leading to:
- An increase in market price for products
- New producers being attracted to the market
- Consumers purchasing products overseas
This is common where tastes and fashions change quickly or if there is a time lag between increases in demand and the firms ability to produce products.
Fair and Unfair Competition
- UK markets are regulated to ensure free and fair competition
- Unfair competition includes cartels
- UK government and EU deem unfair competition as illegal
