2.5.3 Competitive environment

Question 1

market structure

Answer 1

consider number of firms and their size/market share

Question 2

market size

Answer 2

total number of items sold (volume) or total value of sales

larger = competitors = growth ?
PLC = sales grow = firms enter market

Question 3

market share

Answer 3

business measure its sales as a % of total Market sales

Question 4

concentration ratio

Answer 4

measure market share of top “n” businesses in a market highly concentrated = low number of businesses
sum of market share % held by largest specified no. of firms in industry

indicates degree of competition in an industry

Question 5

increasing market competition spectrum

3 levels of competition

Answer 5

1 perfect competition (many small firms = all fair share of mkt e.g. fruit/veg stalls)

2 oligopoly(few firms = responsible large % of total mkt share e.g. supermarkets)

3 monopoly (bus = mkt share of 25% or more, no real comp e.g. Royal Mail)

Question 5

3 factors that determine how competitive a market is

Answer 5

1. potential/ease (BTE)
2. level of differentiation = distinct from rivals
3. extent of current competition e.g. no/size of business in market

Question 6

income elasticity of demand

Answer 6

sensitivity of demand to change in income
-ve = income rise, demand falls
+ve = income rise, demand rise

Question 7

barriers to entry & 3 examples

Answer 7

anything making it more difficult for new firm to enter market (patents?)

1. patents/tech breakthroughs
2. strong brands/high advertising budgets
3. spending on infrastructure

Question 8

oligopoly

Answer 8

few large firms dominate market

Question 9

monopoly

Answer 9

single business dominates supply in given market
25% market share
no close rivals

Question 11

competitive market

Answer 11

large no of similar firms selling similar goods/services to similar target market

• no. of competitors business faces
• direct/fierce products = in competition

Question 12

3 negatives of monopoly for consumers

Answer 12

1. little choice
2. high price
3. little incentive for firm to innovate/provide good customer service

Question 13

5 non price competition

Answer 13

1. branding
2. product features
3. product design
4. advertising
5. tech innovations

Question 14

fiercely competitive market

Answer 14

many small businesses competing on price
profits low, consumers = margin
differentiate = success

Question 15

business response to tougher competitive market

3 responses

Answer 15

1. price cutting
2. increase product differentiation
3. collusion

Question 16

collusion

Answer 16

2 or more rival businesses agree to fix supply or prices within market
ILLEGAL

Question 17

porter’s 5 forces

Answer 17

1. power of customers (buying)
2. power of suppliers (selling)
3. no of competitors
4. barriers to entry (ease)
5. threat of substitutes