The market price is defined as the most recent value at which a commodity is traded. But for some commodities, the price might vary significantly between sellers. For example, there my local fruit market chain sells a certain brand of bread for 15% more than my local corner store, presumably because they have wealthier customers on average.

Could I correctly say that either or both of those prices is 'the' market price? Does the market price change each time a different one of those stores makes a sale?


2 Answers 2


Market price does not need to be unique. Any price at which something is sold at the market is a market price by definition. For example, in the model of monopoly with perfect price discrimination every single consumer is charged different price at the same market according to the consumer's willingness to pay (see Mankiw Principles of Economics 5th ed pp 329). If two customers with different willingness to pay would come at the same time and be charged 2 different prices both would be market prices.

However, this being said, you should note that it is not necessarily appropriate to say local fruit market and some nice bakery can be still considered to be same market. There is not, necessarily, a single market for bread.

You can have market for regular bread and market for more luxury bread or bread with some nice shopping experience, and markets can be also distinguished by location. Markets can be defined more narrowly (e.g. even single cafeteria can be considered market of its own), or more broadly (e.g your whole city to be part of one market for bread). This being said there are no hard rules how narrowly or broadly you have to define a market, but I think the above is relevant caveat to keep in mind. Generally, you would define market for modelling/empirical application in a way that makes the most sense for model you are going to use or research question you are trying to answer.

Does the market price change each time a different one of those stores makes a sale?

If you have different firms competing at the same market let's say firm A and B, you would denote their prices as $p_A$ and $p_B$. The correct way to phrase it would be to say that market price $p_A$ is different from market price $p_B$. Market price can change over time but you would track separately changes to $p_A$ and $p_B$.

  • $\begingroup$ To expand on this point, I would be willing to wager any time there are two meaningfully different prices, one should define two markets. $\endgroup$ Commented Jan 19, 2022 at 23:53
  • $\begingroup$ @RegressForward I feel that is a bit extreme position. Consider Cournot Duopoly where 2 different prices can exist and most textbook would still consider it the same market (the good might be completely homogenous, and they might be set up at the same spot), does it make sense even in such case to say there are different markets? But in many cases I would say that your claim would be good rule of thumb $\endgroup$
    – 1muflon1
    Commented Jan 19, 2022 at 23:56
  • $\begingroup$ That's a good point - there certainly can be multiple viable prices (which is not unique in a math sense), I am thinking that you do not observe both prices at the same time, at least anywhere I can think of. $\endgroup$ Commented Jan 20, 2022 at 1:42
  • $\begingroup$ "Cournot Duopoly where 2 different prices can exist" Is this the same model where a single inverse demand function determines the single price from the aggregate quantity? $\endgroup$
    – Giskard
    Commented Jan 20, 2022 at 7:27
  • 1
    $\begingroup$ @Giskard I actually made a mistake when I was checking the reference that was cournot model with differentiated products I was thinking of. It is in Belleflame and Peitz IO ch3 but I forgot about the product differentiation there, so you are right it has to be Bertrand model with capacity constraints, sorry for the mistake $\endgroup$
    – 1muflon1
    Commented Jan 20, 2022 at 10:54

The market price is a theoretical construct except in special cases (e.g., stock exchanges) where goods are perfectly homogeneous.

In real life situations goods are rarely perfectly homogeneous. Bread brands are different, and even if the same type of bread is sold in two stores, it can be differentiated by its distance from the consumer, by the time you have to wait in line at the store, the quality of the service, etc. (This point was made first by this answer.)

In these cases the two goods are not exactly the same good, thus their sales do not define a single market price.

Note that according to theory the less differentiated goods are, the less difference there is between their prices, thus you get closer to the concept of market price, but should not expect to see a single number.


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