2.6 Competitive market

Question 1

Market

Answer 1

Place where buyers and sellers come together to exchange goods and services.

Question 2

Competition

Answer 2

The rivalry between businesses selling similar products to attract customers and increase market share.

Question 3

Potential impacts of competition on businesses.

Answer 3

• Price competition: try attract customers; may affect profit margins.
• Product improvement: differentiate from competitors and keep current customers.
• Innovation: better product quality and design, find new business opportunities and unique ways to stay ahead of rivals.

Question 4

Situations where businesses face minimal or no competition.

Answer 4

Monopolies: one company dominates the market (e.g. National Grid)
Oligopoly: few large companies dominate market (e.g. airlines, petrol stations, pharmaceutical industry).

Question 5

Risks businesses face

Answer 5

Internal: within the business - business has significant control over it (e.g. security risk, reputational risk, employee unrest, loss of key personnel).
External: outside of business - less likely to have control over (e.g. natural disasters, new competitors, legal change, civil unrest).

Question 6

Why all businesses face uncertainty.

Answer 6

They cannot be prepared for and cannot be measured, unlike risks

Question 7

Reason entrepreneurs embark on running businesses.

Answer 7

• Willing to take risks
• Variety of paths to start from (e.g. risk averse entrepreneurs can start small and achieve small growth whilst others can share risks in partnerships or protect personal assets in limited companies).

Question 8

Activities businesses can undertake to minimise risks.

Answer 8

• Invest in training: provide with skills and prepare for unexpected situations.
• Diversification: develop new markets and reach different markets to reduce overall risk of failure.
• Market research: find what target market wants to reduce failing products.
• Business planning: help make appropriate decisions and prepare resources.
• Hire experts: consultants and experts can help business planning with greater knowledge and make appropriate decisions to avoid worst impact.
• Insurance: provide protection against common risks (e.g. floods).