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Learning and Practice
Market Competition
Types of markets

After reading this page you should turn to your notes and:

1. Write out, in your own words, a definition of commodity market, without looking at the computer screen
2. Make a note of at least two more examples of a commodity market
3. Think of at least one other problem that a business operating in a commodity market might face

Definition:

Commodity markets deal with products from the Primary sector.

Examples:

• The market for coffee beans, before being processed into filter coffee, is a commodity market
• The market for diamonds, before they are processed for use in jewellery, is a commodity market

Relevance to Business:

Commodity markets deal with products that have had little processing work done on them and where there are often many individual sellers of the product (though not always – look into Diamonds as a contrary example). To be a coffee producer, let’s say in South America, can be very difficult – you have almost no control over the price you sell your coffee at and are very reliant on the coffee buyers (usually based in the USA or Europe) who will tell you what price they will buy at. This is often a low price. Farmers in the UK have had many problems with the price they receive for their livestock e.g. lambs. However, if commodity producers can get together and operate as a single business (become a “cartel”), then they can raise the price: look at the work of OPEC, a cartel that attempts to control the price of Oil. Click here to view OPEC’s annual report for 2000 [source: OPEC]. In particular, look at the “Press Releases” which state how much oil each member country of OPEC is planning to produce - OPEC try to control supply.