1. Of course they're markets, since you can have fantasy YA, romantic YA (not erotica, I'm thinking "Sweet Valley High").
2. The distinction is only valuable as a marketing one, and for parents looking to control (that sounds bad; "monitor"?) their kids reading material. I.e., it might be easier for an auntie to go to the MG novels and pick something kinda at random to give her 9-year-old nephew, but know it won't have gratutious sex and violence, than it would be if the distinction wasn't so plain. (I say this because once my mother-in-law gave me a highly-reviewed book for Christmas without reading it herself, and I think she would be mortified to know it contained several murders--one by elephant!--two sex scenes, and one scene where a dwarf looked at pornographic comics with all you might suppose that entails. Decent storytelling, though.)
That said, when I was 12 I was reading grownup fiction more than I was reading fiction geared for people my age, and now that I'm an adult I can enjoy Edith Nesbit, for instance, more than I could as a kid.
Unfortunately I think it all comes down to the money and which framing of the stories will sell the most--that's why romances always have to have feminine colors and swoopy script for the titles, and detective stories (even with female protagonists) have harsh, masculine colors and FONT WITH A LOT OF CAPS. And fantasy stories generally have, somewhere on them, "an epic saga". Tsk.
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