Market

A market is any one of a variety of systems, institutions, procedures, social relations and infrastructures whereby parties engage in exchange. While parties may exchange goods and services by barter, most markets rely on sellers offering their goods or services (including labor) in exchange for money from buyers.

For a market to be competitive, there must be more than a single buyer or seller. It has been suggested that two people may trade, but it takes at least three persons to have a market, so that there is competition on at least one of its two sides.^[1] However, competitive markets rely on much larger numbers of both buyers and sellers. A market with single seller and multiple buyers is a monopoly. A market with a single buyer and multiple sellers is a monopsony. These are the extremes of imperfect competition.

Markets vary in form, scale (volume and geographic reach), location, and types of participants, as well as the types of goods and services traded. Examples include:

• physical retail markets, such as local farmers' markets (which are usually held in town squares or parking lots on an ongoing or occasional basis), shopping centers and shopping malls
• (non-physical) internet markets (see electronic commerce)
• ad hoc auction markets
• markets for intermediate goods used in production of other goods and services
• labor markets
• international currency and commodity markets
• stock markets, for the exchange of shares in corporations
• artificial markets created by regulation to exchange rights for derivatives that have been designed to ameliorate externalities, such as pollution permits (see carbon trading)
• illegal markets such as the market for illicit drugs, arms or pirated products

In mainstream economics, the concept of a market is any structure that allows buyers and sellers to exchange any type of goods, services and information. The exchange of goods or services for money is a transaction. Market participants consist of all the buyers and sellers of a good who influence its price. This influence is a major study of economics and has given rise to several theories and models concerning the basic market forces of supply and demand. There are two roles in markets, buyers and sellers. The market facilitates trade and enables the distribution and allocation of resources in a society. Markets allow any tradable item to be evaluated and priced. A market emerges more or less spontaneously or is constructed deliberately by human interaction in order to enable the exchange of rights (cf. ownership) of services and goods.

Historically, markets originated in physical marketplaces which would often develop into — or from — small communities, towns and cities.^{[citation needed]}

Types of markets

Although many markets exist in the traditional sense — such as a marketplace — there are various other types of markets and various organizational structures to assist their functions. The nature of business transactions could define markets.

 Financial markets

Financial markets facilitate the exchange of liquid assets. Most investors prefer investing in two markets, the stock markets and the bond markets. NYSE, AMEX, and the NASDAQ are the most common stock markets in the US. Futures markets, where contracts are exchanged regarding the future delivery of goods are often an outgrowth of general commodity markets.

Currency markets are used to trade one currency for another, and are often used for speculation on currency exchange rates.

The money market is the name for the global market for lending and borrowing.

Prediction markets

Prediction markets are a type of speculative market in which the goods exchanged are futures on the occurrence of certain events. They apply the market dynamics to facilitate information aggregation.

Organization of markets

A market can be organized as an auction, as a private electronic market, as a commodity wholesale market, as a shopping center, as a complex institution such as a stock market, and as an informal discussion between two individuals.

Markets of varying types can spontaneously arise whenever a party has interest in a good or service that some other party can provide. Hence there can be a market for cigarettes in correctional facilities, another for chewing gum in a playground, and yet another for contracts for the future delivery of a commodity. There can be black markets, where a good is exchanged illegally and virtual markets, such as eBay, in which buyers and sellers do not physically interact during negotiation. There can also be markets for goods under a command economy despite pressure to repress them.

Mechanisms of markets

In economics, a market that runs under laissez-faire policies is a free market. It is "free" in the sense that the government makes no attempt to intervene through taxes, subsidies, minimum wages, price ceilings, etc. Market prices may be distorted by a seller or sellers with monopoly power, or a buyer with monopsony power. Such price distortions can have an adverse effect on market participant's welfare and reduce the efficiency of market outcomes. Also, the relative level of organization and negotiating power of buyers and sellers markedly affects the functioning of the market. Markets where price negotiations meet equilibrium though still do not arrive at desired outcomes for both sides are said to experience market failure.

Markets are a system, and systems have structure. System works fine when the structure of a system is in good condition. Structure of a (utopistically) well-functioning markets is defined in theory of perfect competition. Well-functioning markets of a real world are never perfect, but basic structural characteristics can be approximated for real world markets, for example

• many small buyers and sellers
• buyers and sellers have equal access to information
• products are comparable

Buying and selling in well-structured markets creates a price that satisfies both buyers and sellers, not buying and selling alone as the free market proponents tells us. For example, trade unions are sometimes accused of spoiling the market mechanims of a labour markets, in reality it is the opposite: blue collar trade unions make the buyer and seller more equally powerful when they negotiate the price for a working hour. When the buyer and seller are equally powerful, then the price for a commodity is acceptible to both parties.