Market Structure – The Factors Driving Development Of Markets


A market is a collection of human relationships, institutions, processes, infrastructures or physical structures through which people engage in market exchange. In the absence of a market, people would not be able to develop markets, establish barter exchanges or use other infrastructures for exchange. In most cases, a market does not involve physical structures at all; it is the result of social arrangements, norms, rules or expectations, whether associated with a specific culture or society or grounded in a particular economic theory. Barter exchanges in the modern setting have developed over time as an expression of customary and legal obligations and has been found to be especially relevant for issues such as reciprocity, trust, honesty and the division of property.

Market Structure

The market structure in a society provides the environment necessary for firms to establish and exercise control over their respective markets. The market structure enables firms to make the largest amount of efficient use of their assets, resources and human capital. This process also enables firms to coordinate effectively between their activities so that the best possible use of inputs can be made at the lowest possible cost. A firm that satisfies the market requirements of its customers, i.e., its customers who face competitive pressures, will be able to maximize profits.

The emergence of the market economy is closely related to the creation of equality of access to goods, services and information. The availability of goods, services and information ensures the possibility of perfectly competitive markets. Price formation in the market, therefore, ensures equal access to economic goods and services. But the real question is: How do markets develop?


In most models of market economies, competition and entry into the market is highly diversified, meaning that firms that are highly diversified are able to control the price of their products or their inputs without being forced to compete with other firms on the market. However, there are some key takeaways that one should keep in mind while looking into the development of markets. First, markets do not develop in static conditions. External circumstances can push a market economy to a new path. For instance, when external conditions force a firm to introduce a new product or increase the demand for a product, it can have a dramatic impact on the prices and the level of competition.

Second, the development of markets cannot occur in completely static conditions. There are two key assumptions that must be assumed in analyzing the development of markets – a highly flexible pricing model, and a highly flexible institutional setting. Since markets cannot exist without either of these assumptions, there are two possible outcomes in analyzing the growth of markets. Assuming no change in the underlying assumptions, markets will grow at a constant rate until they reach a saturation point.


The development of markets is directly dependent on three factors. The first factor is the extent of competition and the second is the availability of goods. The knowledge market on the other hand refers to the set of goods and services that individuals need to satisfy their basic needs and as such, they determine the prices of these goods and services. Finally, the black market refers to activities of contraband goods that are not allowed by law and are usually supplied through intermediates.

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