A market boundary is the spatial and temporal delimitation of a market, within which the price of a product is uniformly determined. This concept establishes the geographical area and time period over which a specific product can be considered to trade within a single, unified market with consistent pricing mechanisms.
The spatial component of a market boundary defines the geographical extent within which products are traded under similar market conditions. This may correspond to local, regional, national, or international markets, depending on factors such as transport costs, trade barriers, regulatory frameworks, and the nature of the product itself. For products with high transport costs relative to their value, market boundaries tend to be smaller and more localised. Conversely, products with low transport costs or high value density may have market boundaries that span continents or even global markets.
The temporal component establishes the time period over which market conditions remain relatively stable. This recognises that markets evolve over time due to technological changes, shifts in supply and demand, regulatory developments, and other dynamic factors. In Life Cycle Assessment, defining appropriate temporal boundaries is essential for ensuring that market data accurately reflects the conditions relevant to the assessment period.
Within a defined market boundary, the price of a product is uniformly determined through the interaction of supply and demand. This does not necessarily mean that the price is identical at every location within the boundary, but rather that price variations can be explained by systematic factors such as local transport costs or distribution margins, and that arbitrage opportunities would equalise prices after accounting for these transaction costs.
Understanding market boundaries is crucial for consequential Life Cycle Assessment modelling, where identifying which markets are affected by changes in demand, and which suppliers within those markets respond to changes, directly influences the assessment results. The delineation of market boundaries helps determine which activities should be included in the product system and which Market activities appropriately represent the supply structure within that boundary.
