In economics, what is a market called when one firm's output becomes another firm's input?

In economics, a market in which one firm's output becomes another firm's input is an intermediate goods market.

Intermediate goods are products used to produce other goods or services rather than sold in their current form for final consumption. Steel purchased by an automobile manufacturer, flour bought by a bakery, and computer chips installed in a device are common examples.

National-income accounting treats these purchases carefully to avoid double counting. The value of an intermediate good is included in the price of the final product, so adding both the intermediate sale and the final sale would exaggerate total output. Gross domestic product therefore counts final goods and services, or value added at each production stage.

An intermediate good is defined by its use, not by its physical identity. A loaf of bread bought by a household is a final good, while the same bread bought by a restaurant for sandwiches may be an input. The neighboring concept of derived demand describes demand for inputs that exists because firms or consumers demand the outputs they help produce.