2.5 Competition Flashcards
Competition
When different firms try to sell the same or similar goods or services to a consumer.
What are the two different forms of competition
Price and Non price
What are the characteristics of a competitive market (3)
- A large number of producers compete
- There is a large number of consumers
- No individual producer can determine price or quantity of goods
What is price competition.
What are the benefits (1) and
disadvantages (1) for producers
When firms lower their prices to gain more customers and therefore larger market share, revenue and profits.
However they could go out of business if their prices are too low
When is non price competition most likely to occur
When there are a large number of firms- e.g. car sellers
What is non price competition and give a few examples (5)
When firms compete with factors other than price.
Examples are:
- Offering specialist priducts
- Offering a personalised experience
- Quality of the products
- Higher variety of products
- Advertising, which creates consumer loyalty- consumers are often prepared to pay more for brands they know.
Why do producers compete (3)
To enter a market
To survive in a market
To make a profit
Explain market entry and how firms can compete to enter a market
The firms can advertise buy buying billboards.
They can then advertise lower prices than competitors
This will force existing producers to respond, creating competition
Explain how Business survival can come about because of competition
Firms need to compete for market share
Existing consumers need to be persuaded to return whilst new consumers should be enticed to buy the product.
Firms often extend their range of products e.g. Tesco now sells electronics
Explain how increased profit can come about because of competition
Profits provide the means for investment in order for the firms to expand and innovate.
Producers that innovate can compete strongly in the market
How does increased competition affect price
Increased competition deceases price because of increased supply
What is the effect of competition on PED elastic VS PED inelastic goods
If there is competition for an elastic good, then there will be a lower decrease in price but a higher increase in quantity
If there is competition for a PED inelastic good, the quantity will increase only a bit and the price will decrease alot
What is the impact on competition on producers
2 Advantages
2 Disadvantages
Advantages
1. Forces producers to improve efficiency so they can reduce costs. It will allow them to have a more elastic PES.
2. Producers are more willing to innovate to stay ahead of the competition. Find new ways of doing the same thing (Flash Drive)
Disadvantages
1. The firms that are slow to adapt to the changing technologies are likely to go out of business as they cannot keep up with consumer wants (IBM)
2. Can have lower revenue because of participating in price competition if they don’t cut costs elsewhere.
How can firms increase efficiency (2)
- Technology
- Specialisation
What is the impact on competition for consumers
3 Advantages
3 Disadvantages
Advantages
1. Competition will lead to a fall in price. This means that consumers will have more purchasing power with the same amount of money. This means they can fulfill their wants and have a higher quality of life.
2. Less spending on essential goods because of competition means they can spend more on luxury goods that they want to buy
3. Goods that are of low quality or too high price are likely to be forced out of the market as consumers have a larger variety to choose from.
Disadvantages
1. Comsumers could get a lower quality product because producers may cut corners to reduce costs because of participating in price competition. e.g. using lower quality oil which would lead to food tasting worse
2. Homogenization of products, brands try copy each other to stay with the trends so consumers actually have less choice- Phones
3. Lower quality of customer service as firms may be more interested in acquiring new consumers than retaining current ones
