MARKET

a means by which the exchange of goods and services takes place as a result of buyers and sellers being in contact with each other, either directly or through mediating agents or institutions. The term originally denoted and still sometimes denotes a particular place where products are bought and sold, as in an open-air market. In a wider sense a market can be any arena, however abstracted from physical actuality, in which buyers and sellers can deal with each other; transactions may take place on a global scale. The commodities markets in London or in the United States, for example, are international markets in which dealers from all over the world buy and sell through telephone and telex links as well as by direct contact. One may also talk about financial markets because shares, securities, government bonds, and currencies change hands through organized stock markets or foreign exchange markets. In free markets, prices are determined by the interaction of demand and supply. Classical economists, relying on the virtues of laissez-faire, developed the theory of perfect competition. The market environment is assumed to be one in which the commodity traded is homogeneous, there is a large number of buyers and sellers, buyers and sellers are in touch with each other, and the commodity is easily transferable. Under these conditions each producer accounts for a tiny proportion of the total output of the product or commodity. Consequently, on his own he is unable to influence the price by expanding or contracting output. Similarly, each buyer accounts for only a small part of the total exchange in the market and thus cannot influence price by buying more or less. The price, therefore, is given, and the supplier can sell as much as he can producehis increase in production does not lead to a reduction in price since his total output is a small portion of the total. Although no real markets match the exact conditions of this model, a number approximate it closely. The markets for agricultural commodities are the classic example. These goods are produced under competitive conditions by a large number of widely distributed small producers, who generally have to sell their entire offering regardless of the price level. By and large the total output of such goods does not vary in the short term with changes in price (demand). Supply, on the other hand, is subject to the vagaries of the weather, and greater fluctuations in price occur in response to changes in supply. Since the 1930s, increased attention has been given to imperfect competition, a model that more nearly matches the actual, world markets for manufactured goods. In imperfect competition the number of sellers, buyers, or both may be limited, rival products are typically differentiated (by design, quality, brand names, etc.), and entry into the market by new producers is limited by various factors. In this type of market, supply is usually very responsive to demand in the short term; prices, on the other hand, tend to respond slowly and may not come down in response to a decline in demand, while they may rise more freely if demand permits. Many markets have become more imperfectly competitive in recent decades owing to the increasingly active role of government in influencing markets through fiscal and monetary policies such as tax incentives to encourage new investment in preferred industries or in preferred locations. a means by which the exchange of goods and services takes place as a result of buyers and sellers being in contact with one another, either directly or through mediating agents or institutions. Markets in the most literal and immediate sense are places in which things are bought and sold. In the modern industrial system, however, the market is not a place; it has expanded to include the whole geographical area in which sellers compete with each other for customers. Alfred Marshall, whose Principles of Economics (first published in 1890) was for long an authority for English-speaking economists, based his definition of the market on that of the French economist A. Cournot: Economists understand by the term Market, not any particular market place in which things are bought and sold, but the whole of any region in which buyers and sellers are in such free intercourse with one another that the prices of the same goods tend to equality easily and quickly. To this Marshall added: The more nearly perfect a market is, the stronger is the tendency for the same price to be paid for the same thing at the same time in all parts of the market. The concept of the market as defined above has to do primarily with more or less standardized commodities, for example, wool or automobiles. The word market is also used in contexts such as the market for real estate or for old masters; and there is the labour market, although a contract to work for a certain wage differs from a sale of goods. There is a connecting idea in all of these various usagesnamely, the interplay of supply and demand. Most markets consist of groups of intermediaries between the first seller of a commodity and the final buyer. There are all kinds of intermediaries, from the brokers in the great produce exchanges down to the village grocer. They may be mere dealers with no equipment but a telephone, or they may provide storage and perform important services of grading, packaging, and so on. In general, the function of a market is to collect products from scattered sources and channel them to scattered outlets. From the point of view of the seller, dealers channel the demand for his product; from the point of view of the buyer, they bring supplies within his reach. There are two main types of markets for products, in which the forces of supply and demand operate quite differently, with some overlapping and borderline cases. In the first, the producer offers his goods and takes whatever price they will command; in the second, the producer sets his price and sells as much as the market will take. In addition, along with the growth of trade in goods, there has been a proliferation of financial markets, including securities exchanges and money markets. Additional reading Glenn G. Munn, F.L. Garcia, and Charles J. Woelfel, Encyclopedia of Banking and Finance, 9th ed., rev. and expanded (also published as The St. James Encyclopedia of Banking & Finance, 1991), provides comprehensive definitions, many with bibliographies. Edward I. Altman and Mary Jane McKinney (eds.), Handbook of Financial Markets and Institutions, 6th ed. (1987), is a thorough compilation. Detailed information on a variety of markets is provided in Francis A. Lees and Maximo Eng, International Financial Markets: Development of the Present System and Future Prospects (1975), a descriptive treatment; Charles R. Geisst, A Guide to the Financial Markets, 2nd ed. (1989), for the general reader; Frank J. Fabozzi and Frank G. Zarb, Handbook of Financial Markets: Securities, Options, and Futures, 2nd ed. (1986); and Perry J. Kaufman, Handbook of Futures Markets: Commodity, Financial, Stock Index, and Options (1984), including the history, regulation, and mechanics of futures trading. Further discussion of financial futures is found in Mark J. Powers and Mark G. Castelino, Inside the Financial Futures Markets, 3rd ed. (1991), an explanation of the exchanges and their functions; and Nancy H. Rothstein and James M. Little (eds.), The Handbook of Financial Futures: A Guide for Investors and Professional Financial Managers (1984), a discussion of the market's development, organization, and regulation. The first chapter of Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations (1776, reprinted frequently), contains his famous discussion of the division of labour. Alfred Marshall, Principles of Economics, 9th ed., 2 vol. (1961), conveys his approach to the market. The development of the general equilibrium approach to markets by Leon Walrus and others is well recounted by Joseph A. Schumpeter, A History of Economic Analysis, ed. by Elizabeth Boody Schumpeter (1954). The best short introduction to the Keynesian Revolution is by Michal Kalecki, Studies in the Theory of Business Cycles, 19331939 (1966; originally published in Polish, 1962). These essays were written before the publication of the great work of John Maynard Keynes, The General Theory of Employment, Interest, and Money (1935, reissued 1991). A critical account of the theory of imperfect competition is presented in the preface to Joan Robinson, The Economics of Imperfect Competition, 2nd ed. (1969, reissued 1976). A slightly different approach is that of Edward Hastings Chamberlin, The Theory of Monopolistic Competition, 8th ed. (1962). Economies without markets are described in Karl Polanyi, Primitive, Archaic, and Modern Economies, ed. by George Dalton (1968), a collection of essays of great interest and originality. Andrew Shonfield, Modern Capitalism (1965, reissued 1978), studies the ways in which various countries have adapted their economic administration to modern requirements. A more critical view of modern capitalism is that of John Kenneth Galbraith, The New Industrial State, 4th ed. (1985). A Marxist view is set forth by Paul Baran and Paul Sweezy, Monopoly Capital (1966). A summary of the attempts at economic reform in the then-existent Soviet Union and other countries with socialist economies is given in Michael Ellman, Economic Reform in the Soviet Union (1969). The economic problems of the poor countries are examined in Gunnar Myrdal, The Challenge of World Poverty (1970), a continuation of his monumental work Asian Drama: An Inquiry into the Poverty of Nations, 3 vol. (1968), also available in an abridged edition (1971). The classic appraisal of the market from the standpoint of social welfare is A.C. Pigou, The Economics of Welfare, 4th ed. (1962). Appraisals of welfare economics include I.M.D. Little, A Critique of Welfare Economics, 2nd ed. (1957, reissued 1970); J. de V. Graaff, Theoretical Welfare Economics (1957, reissued 1975); and Maurice Dobb, On Economic Theory and Socialism (1955, reissued 1972). Thorstein Veblen, The Place of Science in Modern Civilisation, and Other Essays (1919, reprinted 1990), most directly expresses his critique of the market ideology.