What is a 'Seller's Market'

A seller's market is a market condition characterized by a shortage of goods available for sale, resulting in pricing power for the seller. A seller's market is a term commonly applied to the property market when low supply meets high demand.

BREAKING DOWN 'Seller's Market'

A seller's market comes into formation when demand exceeds supply for a product or service. A "seller's market" is often heard in real estate to describe a shortage of properties in the face of healthy demand. The seller of a house in a town with a good school system and limited inventory would have firm control over setting the house price. Her house could invite multiple bids and it would not be unusual for bids to exceed the seller's asking price. A buyer's market is the opposite situation, where supply exceeds demand and therefore the power resides with the buyer in terms of setting a price.

Seller's Market in M&A

Certain conditions create a seller's market in the corporate landscape. Again, excess demand for an asset that is limited in supply will shift the balance of power to the seller's side in pricing. Demand is stimulated and bolstered by a positive economic environment, low or modest interest rates, high cash balances, and strong earnings, and other reasons. When executives of a company are confident about its future prospects, they are more willing to pay larger premiums for assets that have scarcity value. These target companies may have superior brand equity, an innovative or leading technology, a dominant market share in a product area or geography, or an efficient distribution network that is difficult to replicate. Whatever the reason for its relative scarcity, the company, if it decides to put itself up for sale, would likely receive a bid or multiple bids (price war) that the Board of Directors and shareholders would find attractive.

RELATED TERMS
  1. Conditional Offer

    In general, an agreement between a buyer and a seller that an ...
  2. Shortage

    A situation where demand for a product or service exceeds the ...
  3. Heavy

    A market that is demonstrating difficulty in advancing and is ...
  4. Seller's Call

    An agreement between a buyer and a seller for a specific grade ...
  5. Buyer's Market

    A situation in which supply exceeds demand, giving purchasers ...
  6. Scarcity Principle

    The scarcity principle is an economic principle in which a limited ...
Related Articles
  1. Insurance

    The Cancer (and Other Drug) Shortage

    Your doctor may not tell you, but even in the U.S., life-saving drugs can be in short supply. Here's what to know and do.
  2. Insights

    The Economic Effects of Food Shortages

    Learn about the effects of food shortages on the economy and social order, and why lack of food isn't necessarily about lack of production.
  3. Insights

    How Does Amazon Charge Taxes on Its Products? (AMZN)

    Most of the tax burdens are shouldered by retailers and individual sellers, creating hidden costs for consumers.
  4. Investing

    10 Must-Know Questions To Ask A Home Seller

    To get a sense of what the home you're considering buying is really like, it helps to talk to the seller.
  5. Investing

    Commodities trading: An overview

    Learn how even non-professional traders can participate in the commodities markets.
  6. Investing

    Commodities: The Portfolio Hedge

    These diverse asset classes can provide downside protection and upside potential. Find out how to use them.
  7. Investing

    Commodity Funds 101

    These funds make investing in gold, oil or grain an easier prospect.
  8. Investing

    3 Reasons to Invest in Discounted Commodities

    Though they're selling at depressed prices, there are several reasons that it could make sense to invest in commodities now.
RELATED FAQS
  1. How is it possible to trade on a stock you don't own, as is done in short selling?

    Understand how the process of short selling allows a person to sell a stock without technically owning it. Read Answer >>
  2. Here's What Short Sellers Must Do to Short a Stock

    Learn what benefits a short seller is required to make up to the lender of shares, or long investor, when shorting a stock ... Read Answer >>
  3. What are the Differences Between Ex Works (EXW) and Free On Board (FOB)?

    Ex Works describes the situation where the seller is responsible for having her goods ready at her place of business. Free ... Read Answer >>
Hot Definitions
  1. Financial Industry Regulatory Authority - FINRA

    A regulatory body created after the merger of the National Association of Securities Dealers and the New York Stock Exchange's ...
  2. Initial Public Offering - IPO

    The first sale of stock by a private company to the public. IPOs are often issued by companies seeking the capital to expand ...
  3. Cost of Goods Sold - COGS

    Cost of goods sold (COGS) is the direct costs attributable to the production of the goods sold in a company.
  4. Profit and Loss Statement (P&L)

    A financial statement that summarizes the revenues, costs and expenses incurred during a specified period of time, usually ...
  5. Monte Carlo Simulation

    Monte Carlo simulations are used to model the probability of different outcomes in a process that cannot easily be predicted ...
  6. Price Elasticity of Demand

    Price elasticity of demand is a measure of the change in the quantity demanded or purchased of a product in relation to its ...
Trading Center