Interactions within markets

• Market interaction


  In economics, refers to the interaction between market forces of supply and demand
• Market


  • An economic system which determines the price and quantity of a good supplied
  • Consists of buyers and sellers of a commodity
  • Manufactures, retailers, distributors and end-users all constitute a market's participant matrix
• Market interaction


  Interrelated with price
• Price


  Balances demand and supply in equilibrium
• Market interaction


  • Varies from one kind of market to another
  • In perfectly competitive market, firms are price takers
  • In a monopoly, a firm possesses a certain degree of market power
  • Asymmetric information can lead to market failure
  • Signalling is used as a plausible solution to market failure
  • Market failure is a situation when a market fails to optimally allocate resources without any external intervention
• Capitalist market framework


  • Free-market philosophy is followed
  • Market interactions are free and fair devoid of any governmental intervention
• Command economy


  • Central planning authority takes over market mechanism and controls principal economic activities of production, distribution and resource allocation
• Mixed economy


  • Certain sectors of an economy are open to free-market interactions
  • Government keeps a tab on market developments and actively participates to restore distributive equality of resources among that country's population
• Market interaction (from a firm's perspective)


  • Firm plans to create a favourable market interaction for building brand value
  • Becomes a marketing issue
  • Analysts analyze economic market interactions to frame effective market-based policies for business firms
  • Research study on a firm's research and development decisions and multi-market interaction has revealed that social welfare is optimized when firms go in for centralized R&D efforts
• Oligopoly - few large firms dominate the industry, some competition but not much
• Monopoly - only one firm sells the product, no close substitutes, high barriers to entry
• The market structure is the way that firms compete with one another