Market and industry: concept, boundaries, classification
Any specific form of entrepreneurial activity belongs to a certain industry in accordance with the specifics of the process of converting resources into goods (technology, equipment, staff qualifications, etc.). The boundaries of the industry are determined by the characteristics of the substitution of goods in production.
An industry represents a set of producers of goods that are close substitutes in the process of their manufacture (production). Therefore, an industry includes entrepreneurs who may serve several markets or market segments that differ in the types and classes of goods produced. The number of entrepreneurs in the industry varies widely: from one to many. The use of basic technology, equipment and similar skills of workers enables entrepreneurs in the industry to master each other’s product lines. To do this, they will need less money and effort than entrepreneurs from other industries.
This significantly increases competition between entrepreneurs. Therefore, even the monopoly position of the entrepreneur in the supply of any product does not free him from the pressure of competition, which becomes potential. It turns into a real one if the profits attract other entrepreneurs and the barriers to entry into the markets, in particular, the amount of funds and efforts to develop and promote the product, are low.
Classification of industry markets
The diversity of market elements, the structure of producers and consumers, their economic independence and self-sufficiency in production, trade, the close relationship between supply and demand, that is, the totality of the elements and characteristics of commodity production, make it necessary to differentiate the market system according to the interests of producers and buyers.
1. The totality of markets can be classified according to the types of activities of its participants, that is, the market can be represented by the following types: production, non-production, financial, intellectual.
The production market is an integral part of the market that serves the totality of branches of material production and satisfies the need for means of production and consumer goods. In turn, the production market is divided into the market of means of production and the consumer market.
The market for the means of production is a sphere of commodity circulation that reflects economic relations between producers and consumers, sellers and buyers, which are aimed at the sale and purchase of material resources of the main production: raw materials, materials, fuel, equipment, tools, spare parts, etc.
The consumer market is a commodity circulation market where the purchase and sale of consumer goods, that is, products or goods that are used in the field of non-productive consumption for personal or collective needs, is carried out.
The labor market is the sphere of sale and purchase on the basis of contractual terms between the buyer of labor power – the employer and the seller of human abilities, which are subsequently used in the process of material production.
The financial market is a set of operations on loans and borrowings, the purchase and sale of foreign currency, the exchange of securities and debt obligations, mortgages and other assets. The financial market includes: capital market, securities market, foreign exchange and loan market.
The securities market satisfies the demand for bank loans to finance investments by commodity producers who have a deficit in the revenue side. A great influence on the efficiency of the securities market is provided by the money market, which uses free funds of organizations and individuals, turning them into short-term debt with a favorable interest rate.
The intellectual product market includes research, development and technological developments, as well as technical and spiritual ideas and completed works in this field.
2. According to the territorial and geographical basis, the market can be external and internal.
The internal market is subdivided into regional local and national, etc., the external market is divided into global, that is, world, border, and so on.
3. The division of commodity circulation into the market of sellers and buyers is predetermined by the economic situation prevailing in the market.
The buyer ‘s market reflects a situation where supply determines demand, that is, there is an excess of goods on the market, which forces the producer to reduce prices. Thus, the buyer’s market supports the interests of the buyer.
Seller’s market – functions in the interests of the seller, so when demand is ahead of supply, a shortage of goods is created, and, consequently, the power of the seller in the market increases, which in this economic situation can, at its discretion, regulate price increases and sales volume, but only until the shortage is eliminated .
4. In addition, there is still a reseller market , since the sale of products can be carried out in two ways. The first method provides for its implementation through its own trading organizations, in the other case, the right to sell the goods is transferred to an economic intermediary, that is, to the intermediate sellers market, which is a set of individuals and organizations that purchase various goods for resale or lease them at a profitable price. lessor basis. In other words, the reseller market is a market for intermediary transactions.
5. Markets are also divided into open and closed . The first suggest free entry to them for anyone. If the entrance is regulated by certain mechanisms, they talk about the isolation (or closeness) of the market, and sometimes – about the presence of barriers to entering the market.
6. According to another criterion, spontaneous and organized markets are distinguished. The latter include markets in which the mechanisms of supply and demand operate. If demand and supply are balanced in the absence of special institutionalized forms of interaction between buyers and sellers, unorganized or spontaneous markets take place.
4. Types of market structures
Each of the characteristics of the market in its own way affects the parameters of its functioning. The totality of market characteristics determines its structure or market type. Obviously, various combinations of market characteristics can reveal a fairly wide range of market structures.
Consider for example the most famous types of commodity markets: perfect competition, monopoly, monopolistic competition and oligopoly.
All four models assume a passive role for buyers in the market and emphasize the behavior of product producers (sellers). If we introduce into consideration the possible characteristics of the market from the side of demand, then the list of market structures will be significantly replenished. In addition to the well-known monopsony model from microeconomics, we can mention the bilateral monopoly model (when a single seller interacts with a single buyer) or the bilateral oligopoly model (when several sellers oppose several buyers in the market).
The figure shows the comparative characteristics of the four main types of market structures according to the parameters of the market structure.
On examples – the relationship between the fundamental assumptions of models and the characteristics of market structures. The premise that buyers have no influence on the market price obviously only holds if the number of buyers in the market is large. On the contrary, a large number of sellers in the market predetermines both the absence of their strategic interaction and the fact that they have no influence on the establishment of the market price.