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In the earlier blog, we mentioned that definition of a market helps identify which buyers and sellers should be included in a given market. To get more clarity on whom to be included or excluded it is important to define the extent of a market – i.e. its boundaries, both geographically and in the range of products to be included.

Extent of a market is the boundaries of a market, both geographical and in terms of range of products produced and sold within it.

If the extent of a market is not defined, it leaves many questions open; lets clarify this with the example of a petrol. When I say a market for petrol the questions that would come out include – which geography are we referring to – Is it Bangalore or Delhi or Mumbai? What is the octane number of the petrol? Is the petrol leaded or unleaded? Should diesel be included as well? Etc.

The market definition is important for two reasons:

• A company must understand its actual and potential competition for its current or future products. A thorough understanding of the product boundaries and geographical boundaries of its market to set the price, determine the advertisement budgets and make capital investment decisions etc.
• At a macro level, an understanding of the market helps make effective public policy decisions. The government could look at the implications of a possible merger or acquisition of two companies either in the same domain or other, on the market situation on the prices, competition and approve or disapprove it

ಹಿಂದಿನ ಅಂಕಣದಲ್ಲಿ ತಿಳಿಸಿದಂತೆ, ಮಾರುಕಟ್ಟೆಯ ಸರಿಯಾದ ತಿಳುವಳಿಕೆ ವ್ಯವಹಾರ ಮತ್ತು ಪ್ರಬಂಧನೆಗೆ ಬಹುಮುಖ್ಯವಾದುದು. ಆದ್ದರಿಂದ ನಮ್ಮ ಈಗಿನ ಹಾದಿಯಿಂದ ಕೆಲಕಾಲದೂರ ಹೋಗಿ, ಈ ಅರ್ಥಶಾಸ್ತ್ರದ ಅಧ್ಯಯನವನ್ನು ಮಾಡಿ ಮತ್ತೊಮ್ಮೆ ಹಿಂತಿರುಗೋಣ.

ಅರ್ಥಶಾಸ್ತ್ರದಲ್ಲಿ ಪರಿಪೂರ್ಣ ಸ್ಪರ್ಧಾತ್ಮಕ ಮಾರುಕಟ್ಟೆಯೆನ್ನುವ ವಿಧವನ್ನು ನಿರ್ಮಿಸಿದ್ದಾರೆ. ಇದರಂತೆ ಯಾವ ಮಾರುಕಟ್ಟೆಯಲ್ಲಿ ತುಂಬಾ ಜನ ವರ್ತಕರು ಮತ್ತು ತುಂಬಾಜನ ಗ್ರಾಹಕರಿರುವರೋ ಅದರಲ್ಲಿ ಸ್ಪರ್ಧಾತ್ಮಕ ಮನೋಭಾವ ಹೆಚ್ಚಿದ್ದು, ಯಾವುದೇ ಒಬ್ಬ ವರ್ತಕ ಅಥವಾ ಒಬ್ಬ ಗ್ರಾಹಕ ಮಾರುಕಟ್ಟೆಯಲ್ಲಿ ವ್ಯವಹಾರಕ್ಕೆಂದಿರುವ ವಸ್ತುವಿನ ಬೆಲೆಯ ಮೇಲೆ ಪ್ರಭಾವ ಬೀರಲು ಸಾಧ್ಯವಾಗುವುದಿಲ್ಲ.

ಸಾವಿರಾರು ರೈತರು ಬೆಳೆಯುವ ಬೆಳೆಗೆ ಅಸಂಖ್ಯಾತ ಗ್ರಾಹಕರ ಬೇಡಿಕೆ ಇರುವುದು; ಹೀಗಿದ್ದಲ್ಲಿ ಅದರ ಬೆಲೆಯನ್ನು ಯಾವುದೇ ಒರ್ವ ರೈತ ಅಥವಾ ಗ್ರಾಹಕ ನಿಶ್ಚಯಿಸಲು ಸಾಧ್ಯವಾಗದು.

ನಾವು ಈ ಹಿಂದೆಯೆ ತಿಳಿಸಿದಂತೆ, ಸ್ಪರ್ಧಾತ್ಮಕ ಮನೊಭಾವಇರುವುದು ಮುಖ್ಯ; ಮಾರುಕಟ್ಟೆಯಲ್ಲಿರು ವವ್ಯವಹಾರಿಗಳ ಸಂಖ್ಯೆಯಲ್ಲ.

ಅಂಗ್ಲ ಅಂಕಣ ಓದಿ: http://somanagement.blogspot.com/2011/04/perfectly-competitive-market_04.html

As we proceeded with the blog, it becomes very important to understand the concept of market thoroughly. With this in mind, we would take a detour from the normal course and get a bit further on the concept of market.

We began with defining the concept of market in the earlier blog. In this blog we would move a bit further and look into some important flavors that economists give to the market. This understanding is important since these flavors encapsulate many common features of the market its competitiveness in the market. We begin with defining the “Perfectly Competitive Market“.

A Perfectly Competitive Market is one that has many buyers and sellers, so that no single buyer or seller has a significant impact on price.

As an Example we could imagine the market for food grains like rice. There are many sellers and many buyers – the choice of any single buyer or seller wouldn’t really affect the overall impact of the market and the price that is defined in the market.

While defining perfectly competitive market the underlying assumption with the large number of buyers and sellers being present is that they would be very competitive with each other. So even if the numbers are not really large but there is very huge competition amongst these sellers or buyers; then too we could assume such a market as a perfectly competitive one for any analysis.

Read in Kannada: http://somanagement.blogspot.com/2011/04/blog-post_04.html

In our discussion on Demand and Supply, to which we would return pretty soon, we made a mention of “Market” where lemons were traded. We have used the term Market in the general understanding of common parlance, but it is interesting to see how Economics defines the term “Market”.

A “market” refers to the collection of buyers and sellers that, through their actual or potential interactions, determine the price of a product or a set of products. It is interesting here to note the difference of the term “market” from that of “Industry” – An Industry is a collection of firms that sell the same or closely related products. In effect industry forms the supply side of the market.

While defining a market; economist are generally concerned with the determination of the buyers, sellers and range of products that should be included in a particular market; this is of interest since the definition of the market essentially buts a boundary on the buyers and sellers – the potential and actual ones both are important. The difference in the definition of the Maker essentially leads to a possibility of “Arbitrage”. Arbitrage: Is the practice of buying at a low price at one location and selling at a higher price in another.

Let’s take an example to make it clear:

Let’s say Mr. X a resident of Hong Kong wants to purchase gold and that the price of gold is significantly lower in Chennai in India. If he intends to make use of this difference in price he would travel all the way from Hong Kong to Chennai and make the purchase at a lower price, take it back to Hong Kong and Sell it at a higher price. This is given that the transportation cost he incurs is much lower than the profit he would earn by entering into such an activity. Such activities would be detrimental on a large scale and hence the possibility of arbitrage is always checked across the globe for gold price.

The example above also highlight the “importance of Information flow in business” – about which we made brief mention while discussing Information Asymmetry.

Read in Kannada: http://somanagement.blogspot.com/2011/04/blog-post.html