A market system (or market ecosystem) is any systematic process enabling many
market players
In economics, an agent is an actor (more specifically, a decision maker) in a model of some aspect of the economy. Typically, every agent makes decisions by solving a well- or ill-defined optimization or choice problem.
For example, ''buyers'' (c ...
to
offer and demand: helping buyers and sellers interact and make deals. It is not just the
price mechanism
In economics, a price mechanism is the manner in which the profits of goods or services affects the supply and demand of goods and services, principally by the price elasticity of demand. A price mechanism affects both buyer and seller who nego ...
but the entire system of
regulation
Regulation is the management of complex systems according to a set of rules and trends. In systems theory, these types of rules exist in various fields of biology and society, but the term has slightly different meanings according to context. For ...
, qualification,
credentials,
reputation
The reputation of a social entity (a person, a social group, an organization, or a place) is an opinion about that entity typically as a result of social evaluation on a set of criteria, such as behavior or performance.
Reputation is a ubiquitous ...
s and
clearing that surrounds that mechanism and makes it operate in a social context. Some authors use the term "market system" to refer to specifically to the
free market system
In economics, a free market is an economic system in which the prices of goods and services are determined by supply and demand expressed by sellers and buyers. Such markets, as modeled, operate without the intervention of government or any ot ...
. This article focuses on the more general sense of the term according to which there are a variety of different market systems.
Market systems are different from
voting system
An electoral system or voting system is a set of rules that determine how elections and referendums are conducted and how their results are determined. Electoral systems are used in politics to elect governments, while non-political elections ma ...
s. A market system relies on buyers and sellers being constantly involved and unequally enabled; in a voting system, candidates seek the support of voters on a less regular basis. In addition (a) buyers make decisions on their own behalves, whereas voters make decisions for collectives, (b) voters are usually fully aware of their participation in social decision-making, whereas buyers are often unaware of the secondary repercussions of their acts, (c) responsibility for making purchasing decisions is concentrated on the individual buyer, whereas responsibility for making collective decisions is divided, (d) different buying decisions at the same time are made under conditions of scarcity --- the selection of one thing precludes the selection of another, whereas different voting decisions are not --- one can vote for a president and a judge in the same election without one vote precluding the other, and (e) under ordinary conditions, a buyer is choosing to buy an actual good and is therefore never overruled in his choice, whereas it is the nature of voting that the voter is choosing among potential alternatives and may be overruled by other voters. However, the interactions between market and voting systems are an important aspect of
political economy
Political economy is the study of how Macroeconomics, economic systems (e.g. Marketplace, markets and Economy, national economies) and Politics, political systems (e.g. law, Institution, institutions, government) are linked. Widely studied ph ...
, and some argue they are hard to differentiate; for example, systems like
cumulative voting
Cumulative voting (also accumulation voting, weighted voting or multi-voting) is a multiple-winner method intended to promote more proportional representation than winner-take-all elections such as block voting or first past the post. Cumulative ...
and
runoff voting Runoff voting can refer to:
* Two-round system, a voting system used to elect a single winner, whereby only two candidates from the first round continue to the second round, where one candidate will win.
* Instant-runoff voting, an electoral system ...
involve a degree of market-like bargaining and trade-off, rather than simple statements of choice.
Types
In
economics
Economics () is the social science that studies the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods and services.
Economics focuses on the behaviour and intera ...
,
market forms are studied. These look at the impacts of a particular form on larger markets, rather than technical characteristics of how buyers and sellers interact.
Heavy reliance on many interacting market systems and different forms of markets is a feature of
capitalism
Capitalism is an economic system based on the private ownership of the means of production and their operation for Profit (economics), profit. Central characteristics of capitalism include capital accumulation, competitive markets, pric ...
, and advocates of
socialism
Socialism is a left-wing economic philosophy and movement encompassing a range of economic systems characterized by the dominance of social ownership of the means of production as opposed to private ownership. As a term, it describes the e ...
often criticize markets and aim to substitute markets with
economic planning
Economic planning is a resource allocation mechanism based on a computational procedure for solving a constrained maximization problem with an iterative process for obtaining its solution. Planning is a mechanism for the allocation of resources b ...
to varying degrees. Competition is the regulatory mechanism of the market system. This article does not discuss the political impact of any particular system nor applications of a particular mechanism to any particular problem in real life. For more on specific types of real-life markets, see
commodity markets
A commodity market is a market that trades in the primary economic sector rather than manufactured products, such as cocoa, fruit and sugar. Hard commodities are mined, such as gold and oil. Futures contracts are the oldest way of investing i ...
,
insurance markets,
bond market
The bond market (also debt market or credit market) is a financial market where participants can issue new debt, known as the primary market, or buy and sell debt securities, known as the secondary market. This is usually in the form of bonds, b ...
s,
energy market
Energy markets are national and international regulated markets that deal specifically with the trade and supply of energy. Energy market may refer to an electricity market, but can also refer to other sources of energy. Typically energy developm ...
s,
flea market
A flea market (or swap meet) is a type of street market that provides space for vendors to sell previously-owned (second-hand) goods. This type of market is often seasonal. However, in recent years there has been the development of 'formal' ...
s,
debt markets,
commercial markets,
online auctions
An online auction (also electronic auction, e-auction, virtual auction, or eAuction) is an auction held over the internet and accessed by internet connected devices. Similar to in-person auctions, online auctions come in a variety of types, with d ...
,
media exchange markets,
real estate market
Real estate business is the profession of buying, selling, or renting real estate (land, buildings, or housing)."Real estate": Oxford English Dictionary online: Retrieved September 18, 2011
Sales and marketing
It is common practice for an intermed ...
, each of which is explained in its own article with features of its application, referring to market systems as such if needed. One of the most important characteristics of a market economy, also called a free enterprise economy, is the role of a limited government.
Protocols
The market itself provides a medium of exchange for the contracts and coupons and cash to seek prices relative to each other, and for those to be publicized. This publication of current prices is a key feature of market systems, and is often relevant far beyond the current groups of buyers and sellers, affecting others' supply and demand decisions, e.g. whether to produce more of a commodity whose price is now falling.
Market systems are more abstract than their application to any one use, and typically a 'system' describes a protocol of offering or requesting things for sale. Well-known market systems that are used in many applications include:
*
auction
An auction is usually a process of buying and selling goods or services by offering them up for bids, taking bids, and then selling the item to the highest bidder or buying the item from the lowest bidder. Some exceptions to this definition ex ...
s - the most common, including:
**
Dutch auction
A Dutch auction is one of several similar types of auctions for buying or selling goods. Most commonly, it means an auction in which the auctioneer begins with a high asking price in the case of selling, and lowers it until some participant accep ...
s
**
reverse auction
A reverse auction (also known as buyer-determined auction or procurement auction) is a type of auction in which the traditional roles of buyer and seller are reversed. Thus, there is one buyer and many potential sellers. In an ordinary auction al ...
s
**
silent auction
An auction is usually a process of buying and selling goods or services by offering them up for bids, taking bids, and then selling the item to the highest bidder or buying the item from the lowest bidder. Some exceptions to this definition ex ...
s
*
rationing
Rationing is the controlled distribution of scarce resources, goods, services, or an artificial restriction of demand. Rationing controls the size of the ration, which is one's allowed portion of the resources being distributed on a particular ...
*
Administrative allocation (including the
command economy
A planned economy is a type of economic system where investment, production and the allocation of capital goods takes place according to economy-wide economic plans and production plans. A planned economy may use centralized, decentralized, part ...
of some states)
*
regulated market
A regulated market (RM) or coordinated market is an idealized system where the government or other organizations oversee the market, control the forces of supply and demand, and to some extent regulate the market actions. This can include tasks ...
(including most real-life examples as above)
*
black market
A black market, underground economy, or shadow economy is a clandestine market or series of transactions that has some aspect of illegality or is characterized by noncompliance with an institutional set of rules. If the rule defines the se ...
(the term 'black' indicating lack of regulation, or any trade, often illegal, operating in violation of official regulations)
The term 'laissez-faire' ("let alone") is sometimes used to describe some specific compromise between regulation and black market, resulting in the political struggle to define or exploit "
free market
In economics, a free market is an economic system in which the prices of goods and services are determined by supply and demand expressed by sellers and buyers. Such markets, as modeled, operate without the intervention of government or any o ...
s". This is not an easy matter to separate from other debates about the nature of
capitalism
Capitalism is an economic system based on the private ownership of the means of production and their operation for Profit (economics), profit. Central characteristics of capitalism include capital accumulation, competitive markets, pric ...
. There is no such thing as a "free" market other than in the sense of a black market, and most free-market advocates favor at least some form of regulated market, e.g. to prevent outright
fraud
In law, fraud is intentional deception to secure unfair or unlawful gain, or to deprive a victim of a legal right. Fraud can violate civil law (e.g., a fraud victim may sue the fraud perpetrator to avoid the fraud or recover monetary compens ...
,
theft
Theft is the act of taking another person's property or services without that person's permission or consent with the intent to deprive the rightful owner of it. The word ''theft'' is also used as a synonym or informal shorthand term for some ...
, and retain some degree of credibility with the larger public. This political debate is out of the scope of this article, other than to note that the "free" market is usually a "less regulated" market, but not qualitatively different from other regulated markets, in any society with laws, and that what opponents of "free markets" usually seek is some kind of
moral purchasing
Ethical consumerism (alternatively called ethical consumption, ethical purchasing, moral purchasing, ethical sourcing, or ethical shopping and also associated with sustainable and green consumerism) is a type of consumer activism based on the conc ...
rather than pure rationing.
As this debate suggests, key debates over market systems relate to their accessibility, safety, fairness, and ability to guarantee clearance and closure of all transactions in a reasonable period of time.
Importance of trust
The degree of trust in a political or economic authority (such as a
bank
A bank is a financial institution that accepts deposits from the public and creates a demand deposit while simultaneously making loans. Lending activities can be directly performed by the bank or indirectly through capital markets.
Because ...
or
central bank
A central bank, reserve bank, or monetary authority is an institution that manages the currency and monetary policy of a country or monetary union,
and oversees their commercial banking system. In contrast to a commercial bank, a central ba ...
) is often critical in determining the success of a market. A market system depends inherently on a stable
money
Money is any item or verifiable record that is generally accepted as payment for goods and services and repayment of debts, such as taxes, in a particular country or socio-economic context. The primary functions which distinguish money are as ...
system to ensure that units of account and standards of deferred payment are uniform across all players—and to ensure that the balance of contracts due within that market system are accepted as a store of value, i.e. as "
collateral
Collateral may refer to:
Business and finance
* Collateral (finance), a borrower's pledge of specific property to a lender, to secure repayment of a loan
* Marketing collateral, in marketing and sales
Arts, entertainment, and media
* ''Collate ...
" of the holder of the contract, which justifies "
credit
Credit (from Latin verb ''credit'', meaning "one believes") is the trust which allows one party to provide money or resources to another party wherein the second party does not reimburse the first party immediately (thereby generating a debt), ...
" from a lender of cash.
Banks, themselves, are often described in terms of markets, as "transducers of trust" between lenders (who deposit money) and borrowers (who take it out again). Trust in the bank to manage this process makes more economic activity possible. However, critics say, this trust is also quite easy to abuse, and has many times proven difficult to limit or control (see
business cycle
Business cycles are intervals of Economic expansion, expansion followed by recession in economic activity. These changes have implications for the welfare of the broad population as well as for private institutions. Typically business cycles are ...
), resulting in 'runs on banks' and other such 'crises of trust' in 'the system'.
Criticisms
In ''
The Economics of Innocent Fraud'', Economist
John Kenneth Galbraith
John Kenneth Galbraith (October 15, 1908 – April 29, 2006), also known as Ken Galbraith, was a Canadian-American economist, diplomat, public official, and intellectual. His books on economic topics were bestsellers from the 1950s through t ...
criticized the concept of the "market system" as nonsensical and as a weasel word intended to replace the term "capitalism", but which does not specify anything specific.
Marketing System
Marketing System is a consistent pattern of provisioning relationships in society that exists between members of society including individuals, firms, communities and institutions. While
marketing
Marketing is the process of exploring, creating, and delivering value to meet the needs of a target market in terms of goods and services; potentially including selection of a target audience; selection of certain attributes or themes to emph ...
, in the sense of firm's micro marketing activities, can be the same across contexts, cultures, and nations, a marketing system is a unique market structure pertaining to a specific context (e.g. agricultural marketing systems in Africa). Marketing system is a differentiated subset of
social system
In sociology, a social system is the patterned network of relationships constituting a coherent whole that exist between individuals, groups, and institutions. It is the formal structure of role and status that can form in a small, stable group. ...
. Marketing system is a general term that represents how different patterns of the flows of goods/services from producers to consumers are culturally (uniquely) organised, whereas terms such as market system (a market based economic system of the West),
horizontal marketing system (cooperation between two firms at the same level), and
digital marketing system (a specific type of centralised channel distribution) represent its context-specific variations. Marketing systems are mostly researched within the discipline of
macromarketing
Macromarketing is an interdisciplinary field that studies marketing as a provisioning technology of society. It focuses on marketing-society interactions including such topics as marketing systems, aggregate consumer behavior, market regulation, s ...
.
Definition
The notion of "aggregated marketing system" signifies all marketing practices at the societal level. Roger Layton defines a marketing system as "a network of individuals, groups and/or entities, embedded in a social matrix, linked directly or indirectly through sequential or shared participation in economic exchange, which jointly and/or collectively creates economic value with and for customers, through the offer of assortments of goods, services, experiences and ideas, that emerge in response to or anticipation of customer demand". Marketing systems can be rudimentary or complex, emergent or purposefully designed, spatio-temporal or virtual; these can also be aggregate, parallel, symbolic,
dignity-based and chrematistics-driven. From the societal perspective, a marketing system represents a public good which can have value over and beyond goods/services it generates.
MAS theory
MAS (mechanism, action, structure) theory of marketing systems proposed by Layton focuses on social mechanisms, strategic action fields, and emergent marketing system structure to explicate potential sources and causes of marketing system's formation, adaptation, and evolution. Social mechanisms include cooperation, specialisation, and self-organisation, while strategic action fields comprise the action and practices of marketing system actors in their specific roles. Layton argues that marketing systems emerge as localised exchanges grow in scope and become stabilised while specialisation expands, and in addition, as key structures become formalised.
MSPG theory
MSPG (marketing systems as a public good) theory conceptualises a marketing system as a purposefully designed structure that resembles a "public good" in its features.
According to this theory, the holistic design of a marketing system as a public good enables its structural elements (e.g. goods, value, exchanges and processes) to become meaningful. Hence, purposeful design precedes emergence.
Symbolism in Marketing Systems
Marketing systems are strongly driven by symbolism.
See also
*
The Economics of Innocent Fraud
*
Capitalism
Capitalism is an economic system based on the private ownership of the means of production and their operation for Profit (economics), profit. Central characteristics of capitalism include capital accumulation, competitive markets, pric ...
*
Financial capital
Financial capital (also simply known as capital or equity in finance, accounting and economics) is any economic resource measured in terms of money used by entrepreneurs and businesses to buy what they need to make their products or to provide ...
*
Free price system
A free price system or free price mechanism (informally called ''the price system'' or ''the price mechanism'') is a mechanism of resource allocation that relies upon prices set by the interchange of supply and demand. The resulting price signals ...
*
Market abolitionism
Market abolitionism is the belief that the economic market should be completely eliminated from society. Market abolitionists argue that markets are ethically abhorrent, antisocial and fundamentally incompatible with long term human and environm ...
*
Market economy
A market economy is an economic system in which the decisions regarding investment, production and distribution to the consumers are guided by the price signals created by the forces of supply and demand, where all suppliers and consumers ...
*
Market forms
*
Money
Money is any item or verifiable record that is generally accepted as payment for goods and services and repayment of debts, such as taxes, in a particular country or socio-economic context. The primary functions which distinguish money are as ...
*
Moral purchasing
Ethical consumerism (alternatively called ethical consumption, ethical purchasing, moral purchasing, ethical sourcing, or ethical shopping and also associated with sustainable and green consumerism) is a type of consumer activism based on the conc ...
*
Risk
In simple terms, risk is the possibility of something bad happening. Risk involves uncertainty about the effects/implications of an activity with respect to something that humans value (such as health, well-being, wealth, property or the environme ...
*
Voting system
An electoral system or voting system is a set of rules that determine how elections and referendums are conducted and how their results are determined. Electoral systems are used in politics to elect governments, while non-political elections ma ...
References
{{Reflist
Economic systems
Market (economics)