Chapter 3 Flashcards
What is private enterprise & competition
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
What is competition
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
What the four forms of compeition
Pure Competition, Monopolostic Competition, Oligopoly, and Monopoly
What is perfect competition
Very many businesses, the product is standard, entry and exit of new business is easy, no market power, eg farming
What is Monopolistic Competition
Many businesses, the product is diffrentiated, entry/exit is fairly easy, some market power eg resturants
What is oligopoly
Few businesses, standard or differentiated product, difficult for entry/exit, some market power. eg telecommunications
What is a monopoly?
One business, n/a for product type, very difficult for entry/exit, great market power, eg utilties
How do you identify a competitor?
It is anyone who produces a substitute product.
What are similiar performance characteristics
Benefits consumers look for to meet their needs.
What are the five forces
Threat of entry, availability of substitutes, supplier power, buyer power, and internal rivalary
What is threat of new entry
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
What are barries to entry?
Can be exogenous (nature of the industry) or endogenous (incumbents strategic choices)
What affects exogenous barries?
Government policies and regulations, entrants access to resources (raw material or tech), high fixed costs to participate in the industry
What affects Endogenous Barries
Brand loyalty of consumers and value on consumers reputions, vertical integration (own your own distribution network)
What are threat of substitutes
can be high, med, or low
What is bargaining power of supplier (high, med, low)
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
What is power of buyer
- 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
What is internal rivalry?
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
When does price competition heat up
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.
