Market Forces

Market Forces

Market Forces Jonathan Poland

The interaction that shapes a market economy. Market forces are the factors that determine the supply and demand for a product or service, and ultimately its price. These forces include a range of economic, social, and political factors, as well as the actions of consumers and businesses. The most basic market forces are supply and demand, which are determined by the availability of a product or service, the willingness of consumers to pay for it, and the ability of businesses to produce it at a cost that allows for a profit. Other market forces include competition, regulation, and external events that can impact the market, such as natural disasters or changes in consumer preferences. The following are examples of market forces.

Supply
The supply of a good, service or labor to a market. Supply has an inverse relationship with price such that an increase in supply decreases prices. For example, if the number of computer science graduates doubles in a year, starting salaries would fall if demand remains constant.

Demand
Demand for a good, service or skill set. Demand has a direct relationship with price such that an increase in demand increases prices. For example, if demand jumps for artificial intelligence experts, their salaries generally will rise.

Threat of New Entrants
A company with little competition may be tempted to raise prices. For example, if there is only one restaurant in a small town they could raise prices and locals would need to pay if they want to eat out. One thing that keeps a company from doing this is the threat of new entrants. If a restaurant raises prices too high, customers will be unhappy and new restaurants in town would instantly take some of their business… (caveat being government regulation artificially setting a baseline.)

Threat of Substitutes
Substitutes are goods from a different market that may compete with incumbent products and services. A classic example are restaurants and supermarkets. People who eat out a lot will buy less food at a supermarket. If there is only one restaurant in town, people will stop eating out if quality falls too low or prices rise too high because supermarkets provide an alternative source of food.

Bargaining Power of Customers
The bargaining power of customers is the will and ability of customers to fight for lower prices and higher quality. For example, a country with a universal healthcare system may have only one customer for healthcare supplies, the government. This allows the government to push down prices as they have a large amount of bargaining power.

Bargaining Power of Suppliers
The will and ability for producers to fight for higher prices and terms that are in their favor. For example, if a lifesaving medication is only produced by one company, they have great leverage to raise prices.

Industry Rivalry
Perhaps the strongest market force is the intense competition between companies. Each company in a market seeks a competitive advantage by reducing costs, improving quality and/or branding their products.

Learn More
Cause and Effect Jonathan Poland

Cause and Effect

Cause and effect is a concept that refers to the relationship between an event (the cause) and a subsequent result…

Program Risk Jonathan Poland

Program Risk

Program risk refers to the likelihood of a program failing to achieve its goals due to potential outcomes. This type…

Microtransactions Jonathan Poland

Microtransactions

Microtransactions is a large scale industry that is becoming a dominant business for certain types of companies. They are small…

Intellectual Property Jonathan Poland

Intellectual Property

Intellectual property (IP) refers to creations of the mind, such as inventions; literary and artistic works; designs; and symbols, names…

Fixed Costs Jonathan Poland

Fixed Costs

Fixed costs are expenses that remain constant regardless of changes in a company’s level of production or sales. These costs…

Business Cluster Jonathan Poland

Business Cluster

A business cluster is a geographic region that is home to a concentration of companies in a particular industry, and…

Corporate Identity Jonathan Poland

Corporate Identity

Corporate identity is the visual representation of a company’s brand and values. It includes elements such as a company’s logo,…

Adaptive Performance Jonathan Poland

Adaptive Performance

Adaptive performance is the ability of an individual to perform well in changing, uncertain, and stressful situations. This type of…

What is Force Majeure? Jonathan Poland

What is Force Majeure?

Force majeure refers to circumstances beyond the control of a party that prevent them from fulfilling their obligations under a…

Content Database

Search over 1,000 posts on topics across
business, finance, and capital markets.

Experience Goods Jonathan Poland

Experience Goods

Experience goods are products or services that are consumed through an experiential or participatory process. They are characterized by their…

Innovation Metrics Jonathan Poland

Innovation Metrics

Innovation metrics are tools used to assess the innovation efforts of a company. It can be challenging to accurately measure…

Data Security Jonathan Poland

Data Security

Data security is the practice of protecting data from unauthorized access, use, modification, destruction, or deletion. It is a key…

Information Security Risk Jonathan Poland

Information Security Risk

Information security risk refers to the potential for unauthorized access, disruption, modification, or destruction of information. This can have serious…

Augmented Product Jonathan Poland

Augmented Product

An augmented product is a product that includes intangible benefits beyond the physical product itself. These intangible benefits may include…

Turnaround Strategies Jonathan Poland

Turnaround Strategies

A turnaround strategy is a plan to rescue an organization, department, or team that is experiencing failure or underperforming. This…

How does a plane fly? Jonathan Poland

How does a plane fly?

A plane flies due to a combination of four fundamental forces: lift, weight (gravity), thrust, and drag. These forces work…

Innovation Principles Jonathan Poland

Innovation Principles

Innovation principles are guidelines that an organization adopts as a basis for innovation activities. They are typically considered foundational policy…

What is Maker Culture? Jonathan Poland

What is Maker Culture?

Maker culture refers to a collection of subcultures that are centered around the creation and customization of technology and other…