Market forces are competitive pressures in a free market that impact prices and output levels. The primary market forces in any market are supply and demand. Beyond this, there are 5 addition forces known as Porter’s five forces that impact prices, quality and the output of markets. The following are illustrative examples of these 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.