2.5.3 The Competitive Environment Flashcards
What is competition?
Competition is when two or more businesses compete for something.
How do businesses in a market compete with each other?
1.) A highly competitive market has a high number of businesses that are offering similar goods/services.
2.) An ^ in competition means that businesses might lose customers. To avoid this, they might ^ their marketing costs or spend on diversifying their products. Alternatively they may cut costs to keep prices lower than competition = ^ demand.
3.) This can benefit the customer as it results in the business bring innovative products to the market or lower prices.
4.) Competition amongst a businesses suppliers can reduce costs for the business.
5.) However, heavy competition can have negative effects on consumers as it can lead to businesses failing.
6.) Firms in competitive markets need to monitor their rivals and their costs to prevent themselves losing money.
What are the 3 different markets that have different types of competition?
1.) Perfect
2.) Oligopoly
3.) Monopoly
What is competition like in a perfect market?
1.) Perfect competition is where there are lot’s of firms in a market + they all compete on an equal basis - their products are pretty much identical, and charge similar prices.
2.) Businesses would need to keep costs + prices low.
3.) However, they would need to keep a high quality to keep demand.
What is competition like in an oligopoly?
-A small no. large firms dominate the market + charge similar prices. For businesses to gain a competitive edge, they focus on marketing + brand image to ^ demand = ^ marketing costs.
2.) Oligopoly firms tend to behave in a competitive environment by improving their customer service or quality.
What is competition like in a monopoly?
1.) A monopoly is where one business has complete control over it’s market (0 competition). A business with a monopoly can usually ^ prices without too much concern of the demand decreasing. Keep marketing costs low.
2.) A monopoly will risk being fined if they against the consumers’ interests.
What is market size?
The number of buyers and sellers within a market.
Large markets and competition
1.) Large markets have more potential customers, meaning more businesses are attracted to these markets = ^ competition.
2.) Before entering a market, a business will need to conduct market research to determine the size of the market + estimate how many customers they’d receive.
3.) It will also tell a business the level of competition.
4.) The no. competitors in a market will affect the businesses marketing strategy, e.g, lots of competing firms in a market may lead a business to focus on promotion and reduce prices.
5.) The level of competition and size of a market will affect a business’s strategy for launching a new product, e,g, if there’s a lot of competition in a market then a business would need to make sure it has enough stock to meet initial customer demand, other wise it may lose customers to competition.
How can the level of competition within a market change?
1.) Businesses will often try to leave small/shrinking markets + move into growing/large markets.
2.) Businesses will move from smaller to larger markets because a larger market size allows for more potential for growth. However, because of this, a large market may attract other new entrants = ^ competition.
