Business competition Flashcards
What are the advantages of competition for firms, consumers, and the economy?
Efficiency: Firms strive to minimize costs and improve productivity.
Choice: Consumers have access to a variety of goods and services.
Quality: Competition encourages higher quality products.
Innovation: Firms innovate to stay ahead of competitors.
Price: Leads to lower prices as firms compete to attract customers.
What are the disadvantages of competition for firms, consumers, and the economy?
Firms: Smaller firms may struggle to compete and go out of business.
Consumers: Too much focus on cost-cutting may reduce quality.
Economy: Excessive competition can lead to wasteful duplication of resources.
What are the advantages of large firms?
Benefit from economies of scale, reducing costs.
Have more resources for research and development.
Can dominate markets and set industry standards.
What are the disadvantages of large firms?
May become inefficient due to diseconomies of scale.
Can dominate markets, reducing competition.
May lack flexibility to adapt to market changes.
What are the advantages of small firms?
Can specialize in niche markets.
Are flexible and can quickly adapt to changes.
Often provide personalized customer service.
What are the disadvantages of small firms?
Limited access to finance.
Lack economies of scale, leading to higher costs.
Struggle to compete with larger firms.
What factors influence the growth of firms?
Government regulation: Can encourage or restrict growth.
Access to finance: Growth requires funding for expansion.
Economies of scale: Larger firms reduce costs and grow.
Desire to spread risk: Diversification encourages growth.
Desire to take over competitors: Mergers and acquisitions promote growth.
Why do firms stay small?
Size of market: Limited demand for their product.
Nature of market: Operate in niche markets.
Lack of finance: Inability to fund expansion.
Aims of the entrepreneur: Preference for control and simplicity.
What is the definition of a monopoly?
A market structure where a single business dominates the market with no close substitutes.
What are the main features of a monopoly?
One business dominates the market: Has significant market share.
Unique product: No close substitutes.
Price-maker: Can set prices due to lack of competition.
Barriers to entry: Includes legal barriers, patents, marketing budgets, technology, and high start-up costs.
What are the advantages of monopolies?
Can benefit from economies of scale, reducing costs.
Have resources for innovation and research.
Provide consistent quality in products or services.
What are the disadvantages of monopolies?
Lack of competition may lead to inefficiency.
Limited consumer choice.
Higher prices due to lack of alternatives.
Quality may decline if monopolists focus on profit.
What is the definition of an oligopoly?
A market structure where a few large firms dominate the market.
What are the main features of an oligopoly?
Few firms: Small number of dominant players.
Large firms dominate: Account for a significant share of the market.
Different products: Firms often differentiate their goods.
Barriers to entry: High costs or legal restrictions limit new entrants.
Collusion: Firms may cooperate to fix prices.
Non-price competition: Compete on quality, branding, or advertising.
Price competition: Engage in price wars to attract customers.
What are the advantages of oligopolies?
Consumers benefit from innovation and quality improvements.
Firms may achieve economies of scale, reducing costs.
Limited number of firms can lead to stable prices.
