Chapter 3

Question 1

What is private enterprise & competition

Answer 1

Occurs in a market economy w/ little government restriction. Indivudals can owner property, have freedom of choice, freedom to earn profits, and freedom to compete

Question 2

What is competition

Answer 2

Businesses compete for the same resouces/customers in a certian market/industry. It motivates busineses to operate efficiently and forces to make products better or cheaper

Question 3

What the four forms of compeition

Answer 3

Pure Competition, Monopolostic Competition, Oligopoly, and Monopoly

Question 4

What is perfect competition

Answer 4

Very many businesses, the product is standard, entry and exit of new business is easy, no market power, eg farming

Question 5

What is Monopolistic Competition

Answer 5

Many businesses, the product is diffrentiated, entry/exit is fairly easy, some market power eg resturants

Question 6

What is oligopoly

Answer 6

Few businesses, standard or differentiated product, difficult for entry/exit, some market power. eg telecommunications

Question 7

What is a monopoly?

Answer 7

One business, n/a for product type, very difficult for entry/exit, great market power, eg utilties

Question 8

How do you identify a competitor?

Answer 8

It is anyone who produces a substitute product.

Question 9

What are similiar performance characteristics

Answer 9

Benefits consumers look for to meet their needs.

Question 10

What are the five forces

Answer 10

Threat of entry, availability of substitutes, supplier power, buyer power, and internal rivalary

Question 11

What is threat of new entry

Answer 11

Can be high, med, low. Entry hurts incumbents as it cuts into their market share and intensifys interal rivalry leading to a decline in profits

Question 12

What are barries to entry?

Answer 12

Can be exogenous (nature of the industry) or endogenous (incumbents strategic choices)

Question 13

What affects exogenous barries?

Answer 13

Government policies and regulations, entrants access to resources (raw material or tech), high fixed costs to participate in the industry

Question 14

What affects Endogenous Barries

Answer 14

Brand loyalty of consumers and value on consumers reputions, vertical integration (own your own distribution network)

Question 15

What are threat of substitutes

Answer 15

can be high, med, or low

Question 16

What is bargaining power of supplier (high, med, low)

Answer 16

There are six factors that can determine this 1. Competitivesness of the input market (how many suppliers can I choose from), Concentration of the input market (or there 2 major suppliers of 7 smaller ones, 3. Availability of substitute inputs, 4. extent of relationship specific investments , 5. threat of forward integration by suppliers (can suppleiers be direct comeptiton) 6. Suppliers ability to price discriminatee

Question 17

What is power of buyer

Answer 17

1. Number of buyers, 2. Buyer concentration (can buyers makee their buying efforts), 3. extent of relationship specific investments, 4. threat of backward integration by buyers

Question 18

What is internal rivalry?

Answer 18

the competition for market share among the firms in the industry. It is intensified when threat of entry is high, availability of substitutes is high, buyer power is high, supplier power is low

Question 19

When does price competition heat up

Answer 19

Many sellers, firms have cost advantages over others, there is excess capaccity in the industry, products are unndiffrentiated and switching costs are low, and prices and sale terms are easily observable.