2.1 Business Growth And Competitive Advantage

Question 1

What is collusion?

Answer 1

Deciding the price by between competition

Question 2

What’s a monopsony?

Answer 2

Only one buyer in the market

Question 3

What is a monopoly?

Answer 3

• 25% market share
• High price
• No competition
• Can be illegal
• High barriers to entry

Question 4

What is an Oligopoly?

Answer 4

• ‘A few big firms’
• Interdependence
• Branding important
• Well above average prices
• Initial capital may be prohibitive

Question 5

Monopolistic competition

Answer 5

• many players in the market
• similar products
• e.g restaurants

Question 6

Perfect competition

Answer 6

• e.g hairdressers
• low barriers to entry

Question 7

Benefits of investing in an innovation

Answer 7

increased corporation tax
(f) increase risk bearing
trading attractiveness
FDI (foreign direct investment)
More employment
Increase GDP
USP
Less competition

Question 8

Drawbacks of investing in an innovation

Answer 8

Risk of failure
Conflicts of interest
UK reputation
Sunk costs
Can be costly in R&D stage
Opportunity costs

Question 9

Role of state funding

Answer 9

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

Question 10

What are internal economies of scale?

Answer 10

When a firm becomes larger, average cost of production fall as output increases

Question 11

Examples of internal economies of scale

Answer 11

Risk-bearing
Financial
Managerial
Technological
Marketing
Purchasing

Question 12

External economies of scale

Answer 12

Occur within the industry e,g local roads improve so decreased transport costs

Question 13

Market power

Answer 13

Large firms have dominance over market, gain price setting powers, discourage entrance of new firms, can gain monopsony power, lower stock prices

Question 14

Competitive advantage

Answer 14

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

Question 15

Cost competitive advantage

Answer 15

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)

Question 16

Profit motive

Answer 16

Firms earn high profits, economies of scale

Question 17

Problems with growth

Answer 17

Economies of scale
Potential skills shortages - might lead to higher wages, firms have to compete to attract employees demand for labour exceeds supply

Question 18

Corporate culture

Answer 18

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

Question 19

Advantages of organic growth

Answer 19

Less risky
Using retained profits - not building up debt therefore more sustainable growth
Existing shareholders retain control over firm - reduced conflicts

Question 20

Disadvantages of organic growth

Answer 20

Slower than inorganic - competitors gain more market power in the meantime, make shareholders unhappy
May rely on strength of market, limit speed

Question 21

Vertical intergration

Answer 21

Same industry, different stage of production

Question 22

Forward vertical

Answer 22

Closer to consumer e.g distributor

Question 23

Backward vertical

Answer 23

Closer to producer e.g supplier

Question 24

Advantages of vertical integration

Answer 24

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

Question 25

Disadvantages of vertical integration

Answer 25

Diseconomies of scale Could create barriers to entry and less efficient market, less incentive to reduce costs

Question 26

Horizontal integration

Answer 26

Same industry, same stage

Question 27

Advantages of horizontal integration

Answer 27

Grow quickly - competitive edge Economies of scale Same expertise - gain advantages e.g marketing

Question 28

Disadvantages of horizontal integration

Answer 28

Monopoly power - lower inefficiency Disagreements in objectives Unemployment- too many employees

Question 29

Conglomerate integration

Answer 29

Two firms with no common connection

Question 30

Advantages of conglomerate integration

Answer 30

Both stronger than individual Wider customer base - market competition reduced Economies of scale

Question 31

Disadvantages of conglomerate integration

Answer 31

Not sufficient focus on each range of products, might reduce quality and increase production costs

Question 32

R&D

Answer 32

Investment in research with intention of improving goods and services or introductions new ones Competitive advantage through innovation

Question 33

Incentive to increase market power

Answer 33

Give products USP, differentiate from rivals,m increase brand loyalty and revenue for firms

Question 34

Product and process innovation

Answer 34

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