We explain what the market is and what market pricing is. Plus, the types of markets, competition, and more.
The market is governed by the law of supply and demand, in addition to state restrictions.
What is the market?
In economics, the market is a physical or virtual space in which goods, services and liquid assets are exchanged for moneyThe exchange takes place between buyers and sellers who can interact directly or through institutions or platforms. It is a process in which both the seller and the buyer obtain some benefit.
The prices or values of goods and services are conditioned by:
- The law of supply and demand (supply refers to the availability of goods and services and demand refers to the number of consumers who want to purchase the goods and services).
- Regulations implemented by States.
- The economic situation of the market worldwide.
See also: Globalization
The price in the market
Wholesale sales are for intermediaries who sell to the final consumer.
The price is the monetary valuethat is, the amount of money that allows the acquisition of a certain good or service in the market and that consumers are willing to pay.
In turn, the value of a product or service in the market is conditioned by various factors, such as:
- The amount of money your manufacturing process requires. It includes the costs of raw materials, the production process, infrastructure, workers and logistics. If the costs of raw materials increase (because they are scarce, because there is devaluation in the country or because there are problems with imports), the price of the final product sold in the market also increases.
- The productive capacity of a nation. It includes the availability of industries and inputs, which, if insufficient, require the importation of inputs or finished products. Low national production contributes to reducing profits and income and gradually impoverishing the population.
- The number of competitors. It includes the existence (or absence) of other bidders or sellers. If the population has no other purchasing alternative, the seller can set the prices he wants, which generates an unfair and undemocratic market condition.
- The law of supply and demand. It includes the quantity of goods or services offered in a specific area or sector and the demand for those goods or services at a given time in the market.
- If there is a lot of supply of a good or service and little demand, the price will tend to fall.
- If there is little supply of a good or service and there is a lot of demand, the price will tend to increase.
- The profit margin or surplus value. It includes the amount of money that the producer or seller wants to obtain as a profit margin. The value of the product must cover the expenses involved in its production and marketing. Furthermore, the price must imply a profit, for the product to be worth producing and marketing.
- The added value. It includes an extra value that the consumer is willing to pay for a product, which exceeds its manufacturing, marketing and surplus value. It has to do with the consumer’s perception of the quality of the product and the brand, and which is related to the level of satisfaction that will be achieved when acquiring the good or service. This subjective value is what is called in marketing “positioning oneself in the minds of people” through marketing strategies. marketingCommunication and publicity.
- The type of audience you sell to. It includes the different types of consumers, according to their need (to supply a business or for final consumption) and their purchasing capacity, which also influences the variation in prices for the same product, for example:
- Retail saleIt is a type of transaction between an entrepreneur or a company that sells to a buyer or final consumer, that is, one who buys for personal use.
- Wholesale. It is a type of transaction between a distributor that sells large quantities of goods at a cheaper price than retail. Buyers are intermediaries, such as companies, distributors or entrepreneurs, who then sell the products to the final consumer and, in this way, make a profit.
More in: Marketing
Types of market
The market is controlled or moderated by the law of supply and demand, the operation of exchanges, competitors and state regulations. All of these factors, in turn, are conditioned by advances in technology.
For example: electronic commerce platforms, alternative payment methods and improvements in logistics processes have allowed us to expand the possibilities of exchanges of goods and services worldwide.
The main types of markets are:
- Finished goods market. It consists of the transaction of the same product, but which is sold at a different value depending on the number of units for each purchase. It can be for sale to retailers (final consumer) or sale to wholesalers (resellers).
- Commodity marketIt consists of the commercialization of unfinished products, materials or supplies so that industries and manufacturers can carry out the manufacturing process of the products.
- Stock market. It involves the exchange of liquid assets that can be converted into money, such as stocks, bonds or investment funds. It is a market that requires certain knowledge on the part of the consumer, or alternatively, the services of an investment advisor are required to operate in the stock market.
Competition in the market
Competition in the market is a situation that contributes to maintaining the balance between supply and demandbecause it promotes constant improvements in the quality of products and services, in the quality of customer service and in the diversity of goods or services available.
Products or services that manage to be competitive, that is, that are preferred by consumers over the diversity of goods and services with similar characteristics, generate more profitability for the seller and more added value for the consumer.
The types of competition can be:
- Perfect competition. It is a non-existent market situation, in which goods and services only compete on the basis of their condition and quality. All suppliers compete on equal terms, without external interventions in the market, acts of competitive disloyalty or advertising.
- Imperfect competition. It is the real market situation, in which factors external to the real condition and quality of goods and services intervene, such as state regulations, monopolies, oligopolies, large advertising campaigns, market strategies, among other factors.
It may be useful to you: Perfect competition market
References
- The market and its functioningNational Consumer Service, of Sernac
- Robinson, Joan Violet (2022). Market from Britannica
- FAO (2022). Why do prices change?. Chapter 3. Food and Agriculture Organization of the United Nations FAO
- Kotler, P. (2001). Marketing management: Analysis, planning, implementation and control. Chapter 14, Product life cycle and strategy management. 8th edition. Master in Administration-Part-Time 29, ESAN.