Commodity Markets
The term benchmark price is primarily associated with commodity markets. Major commodities such as gold, corn and oil trade on international exchanges. The prices on these markets are open to the public and are widely used as a reference in negotiating prices. Prices will vary from the benchmark price based on quality and location. For example, a farmer near a large market may negotiate a higher price for crops if they can sell directly to local shops because this reduces transportation costs and customers may prefer local produce. If the farmer gets a premium on the benchmark price, the price may still rise and fall with the benchmark.Product Markets
It is common to use the price of a major competitor as a benchmark. For example, a small bookseller may reference the prices of an ecommerce company when setting prices.Market Intelligence
In cases where pricing does not occur in a public market, market intelligence firms may collect recent price data to build a benchmark for an industry. This is then sold to both buyers and sellers who use it as a reference for strategy and negotiation. For example, benchmarks for real estate transactions, consulting services or construction projects.| Overview: Benchmark Price | ||
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Definition | The price of recent transactions on a market that can be used as a reference by buyers and sellers. | |
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