Competition Flashcards
Define the term ‘competition’.
The rivalry that exists between businesses when trying to sell goods and services to the same group of consumers
What are the 5 features of a competitive market?
Large number of buyers and sellers Products sold are close substitutes Low barriers to entry No firm has control over prices Free flow of information
What are the 4 advantages of competition for consumers?
Lower prices
Better quality
More innovation
More choice
What are the 2 disadvantages of competition for consumers?
Too many choices
Uncertainty
What are the 4 advantages of competition for firms?
Workers may be motivated Firms forced to: Innovate/reduce wastage of resources Become productively efficient (COP↓) Engage in product differentiation
What is the one disadvantage of competition for firms?
Potential loss of revenue, profit and market share
What are the 3 advantages of competition for the government?
Innovation leads to more international competitiveness
Lower prices can lead to:
Higher demand for exports
Greater purchasing power for consumers (SOL↑)
What are the 2 disadvantages of competition for the government?
Decreased quality of goods can affect consumer welfare
Wastage of resources if many firms produce the same thing
Which 3 factors which can be used to measure the size of a company and why?
Turnover (sales revenue) - determines market share
Number of employees - larger firms need more workers
Capital employed - how much money invested in the firm
What are the 5 advantages of being a small firm?
Flexibility - quick response to changes in the market
Personal service - able to know their customers very well
Lower wages - employees less likely to be part of unions, may not negotiate higher wages
Better communication - few employees = easier to pass messages to staff
Innovation - competition forces them to innovate to attract customers
What are the 4 disadvantages of being a small firm?
Higher costs - less likely to be able to gain economies of scale
Lack of finance - More risky as banks less likely to lend
Difficult to get right staff - pay is lower and not much training offered, more skilled workers will look elsewhere
Subject to more risk - if one item/brand fails
What are the 3 advantages of being a large firm?
Economies of scale
Market domination - better known, higher prices can be charged
Having the resources to win large contracts
What are the 3 disadvantages of being a large firm?
Too bureaucratic - lots of administration and discussion needed for changes
Co-ordination and control - harder to control several employees
Poor motivation - staff may feel their impact on the firm is limited
Give 4 reasons why small firms might survive.
Personalised customer service
Unique selling point/niche
Local monopoly - convenience
Limited demand
Give 4 reasons why firms may not be able to grow.
Difficult to compete with EoS of larger firms
‘External shocks’ eg. COVID-19
Limited demand for particular goods and services
Limited access to finance
What are firms’ 6 motives for growth?
Survival Economies of scale Increased profits Increased market share/control of market Reduced risk Synergy
Define the term ‘internal growth’.
Growing by increasing output and achieving economies of scale
What are 3 ways firms can grow internally?
Investing in more capital goods by borrowing more money
Raising more funds from owners
Keeping some of the profit back in business
Define the term ‘external growth’.
Growing by merging with/acquiring other companies
Define the term ‘integration’.
When one firm combines with another business
Give and define the 2 ways a firm can grow externally through integration.
Merger - when 2 or more businesses willingly join together to make a larger business
Takeover - when one business buys another
What are the 3 types of integration?
Vertical integration
Horizontal integration
Conglomerate integration
Define the term ‘vertical integration’.
When firms at different stages of the supply chain merge to become one
Define the term ‘horizontal integration’.
When firms at the same stage of the supply chain merge to become one
Define the term ‘conglomerate integration’.
When unrelated firms merge to become one
What are the 5 limitations to growth?
Diseconomies of scale Entrepreneur's objective Limited market Lack of finance Low barriers to entry - too much competition
What are the 3 market structures?
Perfect Competition
Oligopoly
Monopoly
What are the 6 features of perfect competition?
Large number of buyers and sellers Goods sold are identical Low/no barriers to entry Firms have no price setting ability Firms have perfect information Firms compete on price
What are the 7 features of an oligopoly?
Dominated by a few large firms Interdependence Price rigidity Collusion High barriers to entry Economies of scale Non-price competition
What are the 5 features of a monopoly?
One single dominant firm Goods/services are unique Very high barriers to entry Firms have price-setting abilities Imperfect competition - firms don't compete
What are the 3 types of monopolies?
Pure monopoly - one producer in the industry
Natural monopoly - when the government allows it to exist
Legal monopoly - when a firm’s market share exceeds 25%
What are the 4 advantages of a monopoly?
More R&D
International competitiveness
Less wastage of resources
Economies of scale
What are the 4 disadvantages of a monopoly?
Higher prices
Restricted choice
Lack of information
Inefficiency
What are the 6 types of barriers to entry?
Marketing barriers Intellectual Property Financial barriers Economies of scale Legal barriers Technical barriers
Define the term ‘collusion’.
A secret agreement and co-operation for a fraudulent or deceitful purpose
Define the term ‘cartel’.
An usually secret, informal agreement between businesses to not compete with each other
What are the 4 advantages of oligopoly firms for consumers?
Lower prices - due to economies of scale
Price stability
Choice
Innovation - better quality G&S
What are the 4 disadvantages of oligopoly firms for consumers?
Diseconomies of scale - leads to higher costs
Price wars
High barriers to entry - prevents choices increasing
Collusion - no incentive to innovate
What are the 4 ways the government regulates the market?
Promoting competition
Limiting monopoly power
Protecting consumer interests
Controlling mergers/takeovers
What are 4 ways the government can promote competition?
Encourage new firms to enter
Reduce barriers to entry
Introduce anti-competitive legislation
Have regulatory bodies
Give 3 ways the CMA (Competition and Markets Authority) regulates competition.
Fining firms
Investigating/monitoring
Preventing mergers/takeovers from proceeding
