2.1 Business Growth And Competitive Advantage Flashcards
What is collusion?
Deciding the price by between competition
What’s a monopsony?
Only one buyer in the market
What is a monopoly?
- 25% market share
- High price
- No competition
- Can be illegal
- High barriers to entry
What is an Oligopoly?
- ‘A few big firms’
- Interdependence
- Branding important
- Well above average prices
- Initial capital may be prohibitive
Monopolistic competition
- many players in the market
- similar products
- e.g restaurants
Perfect competition
- e.g hairdressers
- low barriers to entry
Benefits of investing in an innovation
increased corporation tax
(f) increase risk bearing
trading attractiveness
FDI (foreign direct investment)
More employment
Increase GDP
USP
Less competition
Drawbacks of investing in an innovation
Risk of failure
Conflicts of interest
UK reputation
Sunk costs
Can be costly in R&D stage
Opportunity costs
Role of state funding
Innovation vital for growth + increase GDP, imports, exports, employment
Funding for innovative firms
Gov funded - science, tech, engineering
High tech grow - highly innovative
Large firms entitled 11% tax relief
What are internal economies of scale?
When a firm becomes larger, average cost of production fall as output increases
Examples of internal economies of scale
Risk-bearing
Financial
Managerial
Technological
Marketing
Purchasing
External economies of scale
Occur within the industry e,g local roads improve so decreased transport costs
Market power
Large firms have dominance over market, gain price setting powers, discourage entrance of new firms, can gain monopsony power, lower stock prices
Competitive advantage
Products deemed better that competitors by customers
Can gain using price, quality, cost or niche market, USP makes it stand out and be superior to competition
Cost competitive advantage
Can lower average costs and create max value for consumers
E.g skilled work force, cheap raw materials, effective technology
Hard to maintain so have to offer: strong rep, good customer service, loyalty - (more inelastic)
Profit motive
Firms earn high profits, economies of scale
Problems with growth
Economies of scale
Potential skills shortages - might lead to higher wages, firms have to compete to attract employees demand for labour exceeds supply
Corporate culture
Shared valued of a firm/workplace, implicit beliefs and norms that influence all aspects of working life within a firm and day to day behaviour of employees
Advantages of organic growth
Less risky
Using retained profits - not building up debt therefore more sustainable growth
Existing shareholders retain control over firm - reduced conflicts
Disadvantages of organic growth
Slower than inorganic - competitors gain more market power in the meantime, make shareholders unhappy
May rely on strength of market, limit speed
Vertical intergration
Same industry, different stage of production
Forward vertical
Closer to consumer e.g distributor
Backward vertical
Closer to producer e.g supplier
Advantages of vertical integration
Increase efficiency through economies of scale, reduce average costs, lower price for consumers
Gain more control of market, cost advantages
Certainty over production e.g quality, quantity, price
Disadvantages of vertical integration
Diseconomies of scale
Could create barriers to entry and less efficient market, less incentive to reduce costs
Horizontal integration
Same industry, same stage
Advantages of horizontal integration
Grow quickly - competitive edge
Economies of scale
Same expertise - gain advantages e.g marketing
Disadvantages of horizontal integration
Monopoly power - lower inefficiency
Disagreements in objectives
Unemployment- too many employees
Conglomerate integration
Two firms with no common connection
Advantages of conglomerate integration
Both stronger than individual
Wider customer base - market competition reduced
Economies of scale
Disadvantages of conglomerate integration
Not sufficient focus on each range of products, might reduce quality and increase production costs
R&D
Investment in research with intention of improving goods and services or introductions new ones
Competitive advantage through innovation
Incentive to increase market power
Give products USP, differentiate from rivals,m increase brand loyalty and revenue for firms
Product and process innovation
Technological change - improvements in efficiency and productivity, lower cost for firms, quality and quantity may improve
Development if new products and markets, may destroy existing markets - creative destruction
Innovation - improves production method, becomes more efficient
