What is a Product Market?

 Definition: A product market is the economic marketplace where final goods or services are traded. It is not limited by a physical location since it refers to the commercial environment of a given economic system.

What Does Product Market Mean?

The product market is the place where supply and demand of final goods interact with each other. Companies act as suppliers and offer their products to potential customers at prices that are set following the dynamics of the laws of supply and demand. Governments and other entities normally step in to oversee the market’s activities, and depending on the degree of regulation they impose, the market might be catalogued from free to restricted.

An example of a free market would be the retail market, where few regulations are imposed and market players are free to interact between each other. On the other hand, an example of a restricted market would be the nuclear energy market which, due to the dangerous nature of the product, must be heavily regulated to avoid negative outcomes that might put society at risk. Also, there are non-governmental entities that often have a role in product markets, like those that protect certain consumer’s rights or the environment.

Example

Here’s an illustration. The global health care market has many different subdivisions. For example we have health care providers, pharmaceutical companies, health care professionals or health care equipment suppliers. Each of these sub-markets have different dynamics and different levels of regulation. The pharmaceutical market is heavily regulated in comparison with the health care equipment market.

In the U.S., the Food and Drugs Administration has strict rules for new drugs being introduced to the marketplace. Many stages of trials are required in order to avoid undesired consequences on customers, once the product is released. There are also consumer associations that worry about the use of dangerous chemicals in drugs and they are constantly pushing for new regulations to increase transparency within the industry. All these player together form what we known as the health care product’s market.