Understanding markets

14.1 Types of market

Local vs national:

• Most new firms know and care little about the size of the national market.If you've just bought an ice cream van that you intend to operate in Chichester, it does not matter whether the size of the UK market for ice cream if £500m for £600m per year. The concern is the level of demand and the level of competition locally.

Physical and electronic (virtual):

• Markets used to be physical. 
• Today an increasing number of markets are digital. The stock market exists only on computer screens, and the likes od eBay are transforming auction and other markets worldwide.

From a business point of view the key factors about electronic markets are as follows:

• They are fiercely price competitive, so companies have to keep costs low to survive.
• They do not rely on physical location.
• The market is easy and cheap to enter - barriers to entry are low.
• They provide a 'long tail' of competitive, profitable small businesses, able to carve their own little niche in markets - difficult to to achieve on the high street.

14.2 Factors determining demand

Several factors determine the demand for a specific product/ service.

Price:

• The higher the price, the more people there are who cannot afford to buy the product.
• The higher the price, the less good value the item will seem compared with other ways…