Posted in Marketing and Strategy Terms, Total Reads: 399
Definition: Market Forces
A market is a group of people who demand a product or service (buyers), a group of people who supply the product or service (suppliers) and a group of people who facilitate the transaction between the other two groups (market-makers).
Collectively, the buyers determine the aggregate quantity demanded and the suppliers determine the aggregate quantity supplied. In a perfect market aggregate quantity demanded is equal to aggregate quantity supplied.
The factors that affect demand and supply together constitute market forces and in the case of the market of a particular product or service may be factors like:
● price of product or service - as determined by costs like raw material, technology or labour and environmental factors
○ For example, when the price of a product like smartphones reduces, the quantity sold tends to go up. In contrast, when the prices of onions rises, consumption of onions tends to decrease.
○ The decrease in the price of smartphones may be as a result of improved technology, cheaper raw material or lesser taxes. Alternatively, the increase in the prices of onions is most likely to be a result of environmental factors like monsoon.
● Price of substitute product of service
○ For example, if the price of a substitute product like Pepsi were to go down vis a vis the prices of Coke, people would tend to consume more Pepsi.
● Price of complementary product or service
● Income of buyers
● Sophistication of market - organized, unorganized or semi-organized
○ Transaction costs, that are costs associated with completing the buying and selling of the product, and may include search costs, transport costs etc. tend to be lower in the organized sector and highest in the unorganized sector.
● Public perception of the product or service
○ For example, the recent case (2015) of the pulling off of Maggi by Nestle in India was caused primarily as a result of changing public perception of the product. Overnight, market forces had made unavailable Maggi everywhere.
● Governmental regulation
○ For example, governmental regulation regarding renewable energy like tax-breaks etc. may incentivize the renewable energy producers’ market