theory of markets
theory of marketsthe body of theory concerned with how scarce FACTORS OF PRODUCTION are allocated between the multitude of product MARKETS in the economy More specifically the theory of markets is concerned with the determination of the prices and outputs of goods and services and the prices and usage of factors of production.
The ‘theory of markets’ distinguishes between types of markets by reference to differences in their MARKET STRUCTURE. The main structural distinction is made according to the degree of SELLER CONCENTRATION, that is, the number of suppliers and their relative size distribution. Other structural features emphasized include the character of the product supplied, that is, whether it is a HOMOGENEOUS PRODUCT or differentiated (see PRODUCT DIFFERENTIATION), and the CONDITION OF ENTRY to the market. Given these structural distinctions, the theory examines the way in which market structure interacts with MARKET CONDUCT to produce particular patterns of MARKET PERFORMANCE. See also PERFECT COMPETITION, MONOPOLISTIC COMPETITION, OLIGOPOLY, MONOPOLY, RESOURCE ALLOCATION, MARKET STRUCTURE-CONDUCT-PERFORMANCE SCHEMA, FACTOR MARKETS, PRICE SYSTEM, PARETO OPTIMALITY.