Classification of Markets

Markets can be classified based on various dimensions that capture their characteristics, operation, and interactions. Here is a detailed discussion on each classification point, covering all essential aspects.

On the Basis of Location`

Based on the place of location or operation, markets are categorized as follows:

a) Village Markets

• These markets are typically located within small villages.
• In a village market, most transactions occur between local buyers and sellers.
• Transactions often involve perishable commodities like vegetables, milk, and local goods.
• The village market serves as an essential hub for exchanging goods in small lots.

b) Primary Wholesale Markets

• These markets are situated near production centers of agricultural commodities, usually in large towns.
• In primary wholesale markets, producers (farmers) sell their goods directly to traders.
• A significant portion of the transactions involves bulk purchases and sales.
• These markets help producers sell large quantities of commodities quickly and efficiently.

c) Secondary Wholesale Markets

• Typically located in district headquarters, trade centers, or near railway junctions.
• Transactions here are between village traders and wholesalers rather than direct farmer-trader interactions.
• Goods arrive from other markets and are often processed in large quantities.
• Various specialized marketing agencies (e.g., commission agents, brokers, weighmen) handle different marketing functions.

d) Terminal Markets

• Located in metropolitan cities or seaports (e.g., Bombay, Madras, Calcutta, Delhi).
• The produce is either disposed of to consumers, processors, or assembled for export.
• These markets use modern marketing methods, have commodity exchanges, and facilitate forward trading.
• Terminal markets act as central hubs where commodities are aggregated before distribution to consumers and processors.

e) Seaboard Markets

• Located near seashores and mainly deal with import and export transactions.
• These markets are crucial for international trade and export-oriented goods.
• Examples of seaboard markets in India include Bombay, Madras, and Calcutta.

2. On the Basis of Area/Coverage

On the basis of the geographical area involved in transactions, markets are divided into four classes:

a) Local or Village Markets

• Involve buying and selling activities among traders and consumers from the same or nearby villages.
• Often focus on perishable commodities like vegetables, milk, and grains.
• These markets deal in small lots and emphasize local consumption and trade.

b) Regional Markets

• Buyers and sellers come from a larger area than local markets.
• Often associated with food grains and agricultural products.
• Regional markets are vital in supplying food grains from villages to towns and cities across regions.

c) National Markets

• Involve transactions at the national level and deal in durable goods like jute and tea.
• Buyers and sellers span across entire countries.
• These markets are integral to ensuring a stable supply chain and availability of goods nationwide.

d) World Market

• Transactions in a world market involve buyers and sellers from all over the globe.
• Typically deal with commodities that have global demand and supply, such as coffee, machinery, gold, silver.
• In recent years, liberal international trade has increased the global market presence of agricultural products, including cotton, sugar, rice, and wheat.

3. On the Basis of Time Span

Markets are categorized into three classes based on how long the transactions take place:

a) Short-period Markets

• Markets held only for a few hours.
• Typically deal in highly perishable goods, like fish, fresh vegetables, and liquid milk.
• In these markets, prices are primarily driven by demand rather than supply.

b) Long-period Markets

• Held over longer durations than short-period markets.
• Deal in less perishable commodities, such as food grains and oilseeds, which can be stored for some time.
• Prices in long-period markets are influenced by both supply and demand factors.

c) Secular Markets

• Permanent markets that deal in durable commodities that can be stored for many years.
• Examples include machinery and manufactured goods markets.
• These markets remain in operation for extended periods and are stable in trade interactions.

On the Basis of Volume of Transactions

Markets are categorized into two main types based on the volume of goods exchanged:

a) Wholesale Markets

• Transactions occur in large quantities or bulk.
• Usually involve producers, traders, and wholesalers rather than direct consumers.
• Often located in primary or secondary wholesale centers, serving as central hubs for bulk distribution.

b) Retail Markets

• In retail markets, transactions take place between retailers and consumers.
• Retailers purchase goods in wholesale markets and sell them in small lots directly to consumers.
• These markets are close to consumers, facilitating direct consumer purchases of goods in smaller quantities.

On the Basis of Nature of Transactions

Markets are classified according to the types of transactions that occur:

a) Spot or Cash Markets

• In a cash market, goods are exchanged for money immediately after the sale.
• Transactions focus on instantaneous trade, ensuring quick exchanges.
• Often deal in commodities that are easily sold and transported.

b) Forward Markets

• In forward markets, commodities are purchased and sold at a specific future date (i.e., t+1 or beyond).
• Sometimes, rather than the actual exchange of goods, price differences are paid or received.
• Used for hedging future risks, forward contracts, and price speculation.

On the Basis of Number of Commodities in Transactions

Markets can be general or specialized, depending on the types of goods they handle:

a) General Markets

• Involve transactions of a wide variety of commodities, including food grains, oilseeds, fiber crops, etc..
• These markets deal in many different commodities, facilitating a large number of transactions.

b) Specialized Markets

• These markets deal in one or two specific commodities.
• Often require dedicated infrastructure and trade agencies for handling particular goods.
• Examples include food grain markets, vegetable markets, wool markets, and cotton markets.

On the Basis of Degree of Competition

Markets vary on a scale from perfect competition to monopoly, with several intermediate levels.

Perfect Markets

• A perfectly competitive market must have:
  • Many buyers and sellers.
  • Perfect knowledge of demand, supply, and prices.
  • Uniform prices across locations and over time, except for transportation and storage costs.
  • Uniform prices for different forms of a product, with conversion costs factored in.

Imperfect Markets

• Markets where the conditions of perfect competition do not hold are known as imperfect markets. Various subcategories include:

a) Monopoly Market

• Only one seller controls the supply and price.
• Often results in higher prices due to lack of competition.
• Example: Farmers facing monopoly electricity suppliers for irrigation.

b) Duopoly Market

• Contains only two sellers who may agree on prices that are higher than in competitive markets.
• A similar market situation for two buyers is termed a duopsony market.

c) Oligopoly Market

• Characterized by a few sellers controlling the market but still not monopolizing it entirely.
• An oligopsony market has a few dominant buyers.

d) Monopolistic Competition

• Many sellers offer differentiated products, often branded distinctly.
• Example: In input markets, farmers can choose among various brands of fertilizers, insecticides, and pumps.

On the Basis of Nature of Commodities

Markets can be categorized depending on the types of goods they deal in:

a) Commodity Markets:

• These markets deal in physical goods and raw materials, such as agricultural products (wheat, barley, cotton), fertilizers, seeds, etc.
• The primary function is to facilitate the trade of bulk goods that are often produced in farming areas and exchanged in wholesale markets.
• Examples: Agricultural commodity markets, local grain markets, seed markets, etc.

b) Capital Markets:

• Capital markets deal in financial goods, such as bonds, shares, securities, etc.
• These markets include platforms where investors trade financial instruments.
• Examples: Stock markets, bond markets, money markets, etc.
• Purpose: Facilitate the trade and exchange of investments rather than tangible goods.

On the Basis of Stage of Marketing

Markets are also categorized according to their role in the supply chain.

a) Producing Markets:

• Located in areas where production occurs, such as rural regions and farms.
• Their primary role is to assemble raw goods and pass them on to wholesalers, distributors, or other markets for further transactions.
• Examples: Local farm markets, cooperatives, etc.
• Often involve bulk trade transactions, serving intermediaries.

b) Consuming Markets:

• Found in urban centers or areas where demand is high but local production is insufficient.
• These markets collect goods for final sale to consumers, focusing on meeting the demands of households and businesses.
• Examples: Urban markets, supermarkets, local grocery markets
• Characteristics: Higher demand variability, more diverse product availability, and increased consumer engagement.

On the Basis of Extent of Public Intervention

Markets are categorized based on the extent to which government or public policies shape their operations.

a) Regulated Markets:

• Operate under strict statutory organizations and regulations.
• These markets are characterized by standardized pricing, fair trade practices, and reduced exploitation.
• The aim is to protect the interests of producers, consumers, and intermediaries.
• Government intervention ensures price stabilization, quality checks, and transparency.
• Examples: Agricultural produce markets regulated by Agricultural Produce Market Committees (APMCs).

b) Unregulated Markets:

• Traders independently set the rules and pricing mechanisms in these markets.
• Lack of oversight results in inconsistencies in charges, price manipulation, and exploitation of farmers or consumers.
• Often suffer from high transaction costs and price volatility.
• Examples: Local mandis, small markets with no regulatory bodies.

On the Basis of Type of Population Served

Markets can also be divided based on whether they serve urban or rural populations.

a) Urban Market:

• Primarily serves populations residing in cities and metropolitan areas.
• Urban markets demand a wide range of agricultural and farm products, focusing on high turnover and convenience.
• Examples: Supermarkets, city markets, online platforms, etc.
• Often characterized by higher prices and consumer preferences for processed goods.

b) Rural Market:

• Serves the rural population, where agriculture is a dominant economic activity.
• Requires specific embedded services, such as fertilizers, seeds, and organic products.
• Often characterized by lower transportation costs and direct transactions between producers and traders.
• Examples: Local village markets, farmer cooperatives, rural trade fairs.

On the Basis of Accrual of Marketing Margins

Marketing margins refer to the profit share that various participants in the supply chain earn. This classification depends on who controls and benefits from these margins.

a) Co-operative Marketing:

• Involves producers or consumer cooperatives managing the trade and distribution.
• Co-operative markets ensure that marketing margins are minimal or fairly distributed among members.
• This system increases profit retention among producers and minimizes exploitation by middlemen.
• Common in agriculture-based cooperatives, especially for commodities like milk, fertilizers, sugarcane, etc.

b) Private Trade:

• In contrast, private markets are dominated by traders and intermediaries, where profits are more skewed.
• Traders tend to set higher margins, which can increase costs for consumers and reduce profits for producers.
• Common in unregulated markets and local mandis, these traders handle the bulk of marketing operations.
• The co-operative model encourages collective ownership, fair trade, and community profit sharing, ensuring greater economic sustainability for producers.