2.5 - Competition Flashcards
What happens in a highly competitive market?
Many businesses offer similar products.
Companies may increase marketing, improve products, or cut costs to stay competitive
How does competition benefit consumers?
Drives innovation and new products.
Reduces prices on existing products.
Increases customer choice.
How can competition negatively impact consumers?
Fierce competition can force businesses to close, leaving customers without services (e.g., Monarch Airlines closing in 2017).
How does competition among suppliers affect businesses?
Can lower raw material costs, allowing businesses to offer cheaper products to consumers.
Why do businesses monitor competitors?
To adjust marketing, production costs, and pricing strategies to avoid losses.
What is perfect competition?
A theoretical market where:
Many firms compete equally.
Products are identical.
Prices remain similar.
How do businesses compete in perfect competition?
Keep costs low to maintain low prices.
Maintain high quality to sustain demand.
What is an oligopoly?
A market where a few large firms dominate (e.g., Apple & Google in mobile OS).
How do firms compete in an oligopoly?
Marketing and branding (high advertising costs).
Improving customer service and product quality.
Why is it difficult for new businesses to enter an oligopoly?
Established brand loyalty.
Strong marketing and advertising dominance.
What is a monopoly?
A market where one business has total control, eliminating competition.
Why can monopolies charge higher prices?
Consumers have no alternative, so demand remains high.
What happens if a monopoly abuses its power?
Risk of fines (e.g., Google fined £2.1 billion in 2017 for favoring its own shopping service).
What determines market size?
The number of buyers and sellers in a market.
Why do larger markets attract more businesses?
More potential customers, leading to higher competition.
What must a business do before entering a market?
Conduct market research to:
Estimate demand.
Understand competition.
Determine marketing strategies.
How does market research affect a business’s strategy?
In a small market → use targeted advertising.
In a highly competitive market → invest heavily in promotion & pricing strategies.
Why do businesses move from small markets to large ones?
More growth potential.
Opportunity for higher profits.
What is the risk of entering a large or growing market?
Attracts more competition from new businesses.
How does competition affect product launches?
A business must stock enough inventory to meet demand.
If not, competitors may copy the product and take customers.
