What is a “market”?

I attended a conference last week and, especially, a research development workshop. In this workshop, one of the discussants commented on a paper that the author (not me) had to make it clear whether the firm was “entering a new market or only launching a new product in an existing market.” That comment totally confused me, so I had to ask what is “a market” – is there really a difference between “supplying a new product in an ‘existing’ market” and “entering a new market”? And how are these actions different in kind (not just degree)?

The discussion in response to the question was even more confusing, until the other discussant clarified my point as being “deeper” and “philosophical.” At this point, the group went on to another issue.

It may be the case that my point was “philosophical” to some extent. After all, I tend to always aim for apparent problems in the underlying reasoning and assumptions rather than on the superficial, applied, or practical level. Anyone who aims for finding truth and understanding the world cannot be satisfied with less – any explanation based on a loose foundation and/or sloppy reasoning is a non-explanation. Milton Friedman was wrong: a  theory with outrageously unreal assumptions that tends to “predict” well is not a good theory; it will provide bad predictions sooner or later (probably sooner), and we cannot know when this blind dart-throwing may hit the target.

So what is the difference between launching a “new product” in an “existing market,” on the one hand, and “entering” a “new market,” on the other? The problem lies in the lack of definition for what is a market and the contradictory perspectives implied (but not explicitly stated) in this false dichotomy. From an economic point of view, there are not several markets; there is only one market, since all producers compete with their products and services for the medium of exchange through which they can satisfy their wants. Furthermore, they all compete with each other for the means of production.

Any identification of separate markets in this web of interconnectedness is quite arbitrary, and can only be done productively for a specific and valuable purpose. One can in this sense speak of a “market for computers” while really denoting existing demand for the products commonly referred to as computers; one can also speak of “the market” (often derogatorily) in the sense of the buying and selling of financial instruments. They are without clear boundaries, however, and cannot easily be separated. The demand (market) for computers is necessarily interlinked with that for financial instruments; many computers are purchased using some kind of financing such as monthly payments (with or without interest) or “bill me later” schemes. And, universally applicable, what money is used to purchase a computer cannot be used by the same person to buy financial instruments, just like the seller of the computer may not be able to buy financial instruments were it not for the sales of computers.

But even so, there is a big confusion in the statement that one can launch a new product in an existing market. Even if we use the term “market” as a mental tool for simplifying demarcation of the products or services we presently refer to, how can there be a market for a product that does not yet exist? There cannot – a market is the buying and selling of a product, and – more fundamentally – a demand (and supply) for this product. The market for iPads did not exist prior to Apple making it public that they were offering iPads; there was a market for computers and even tablet computers, but not for iPads. This market is fundamentally and completely dependent on the existence of a supply (or expected supply) of iPads.

In other words, launching a new product necessarily involves creating a market that did not previously exist. The only possibility of launching a new product in an existing market is if there are other products already available that consumers consider as substitutes, and therefore that there is already a competition that the producer of this new product needs to take into account. The problem is then definitional: what is so new with this product if it, by consumers, is considered a substitute? Is Samsung’s production and offering of the Galaxy Tab, to them, the offering of a new product in an existing market or entering a new market? After all, they did not offer “pads” before – so the pad market is new to them. They did not produce exactly the Galaxy Tab before, but they already produced similar products (smart phones, tablet computers) as well as (as far as I know) all the components necessary.

This brings up the issue of perspective in these statements: for whom do we consider launching a new product in an existing market? To consumers of (i)Pads, the Galaxy Tab was a new product in an existing market – their demand for pads was already there, but they were unaware of the Samsung product. So there was, to consumers, an existing market for Galaxy Tab substitutes, but the Galaxy Tab itself was new. For Samsung, however, it may have constituted entering a new market – they had not sold pads before.

So in what way is it a dichotomy? If we adopt the same perspective to both statements, Samsung both entered a new market and launched a new product in an existing market. More narrowly defined, the market for Galaxy Tabs did not exist prior to its release (so they entered a new market); more broadly defined, Samsung was already operating in that “market” but added another product to their supply.

So what’s confusing with the statement? Everything. It assumes a billion things and mixes perspectives in creating a dichotomy. It may be unclear in the paper exactly what is studied, which is without question a problem to the quality of it. Yet the call to “clarify” is possibly less clear than the unclarity in the paper. It is just confusing and bad scholarship.