EI - Competition And Market Types (External Influences)

Question 1

What is Competition?

Answer 1

Rivalry amongst sellers

Question 2

What is a Market?

Answer 2

Is a situation where buyers and sellers are in contact in order to establish price

Question 3

What two types of markers are there?

Answer 3

• Physical

- Non-physical

Question 4

Why have non-physical markets grown so rapidly?

Answer 4

• Because of the convenience they offer

- Cheaper for businesses as one website is cheaper than multiple stores

Question 5

Why do Physical Markets continue to exist?

Answer 5

Because of the convenience they offer

Question 6

Why is the Market Price important?

Answer 6

• Means that Firms can’t charge a price that is too far out of line of the market price due to competition
• Affects Mark-up, if market prices rise so does the mark-up this is a signal to firms in that market to try to supply more because it is now more profitable to do so.

Question 7

What is Market Price?

Answer 7

Although there is no such thing as ‘the market price’ in the sense of a single price for a product, there is a price range in a market at which consumers are prepared to pay.

Question 8

What is Mark-Up?

Answer 8

Is the difference between the cost of producing an item and the price at which it is sold.

Question 9

What could happen to a firm if it isn’t aware of changes in the market price?

Answer 9

• Lower Profits
• Affect stakeholder groups negatively
• Could cause girl to go into liquidation

Question 10

What are Barriers to entry?

Answer 10

The factors that could prevent a business from entering and competing in a market

Question 11

What are Barriers to Exit?

Answer 11

The factors that could prevent a business from leaving a market, even if it would like to.

Question 12

What is a Competitive Market?

Answer 12

• Is a market structure in which there are a large number of firms producing a similar product who are competing to meet the needs of a large number of consumers
• Have to accept the price in the market
• Difficult for firms to raise the price as consumer will switch to another supplier

Question 13

What is a Monopoly?

Answer 13

• Market controlled by a single business
• Monopolist can Control the market because it is the only supplier in the market, and therefore can charge whatever price it likes
• A firm that is dominant in a market may not Act in the interest of consumers
• Competition Markets Authority (CMA) May be concerned about the behaviour of large businesses

Question 14

How much market share must a business have to be a monopoly?

Answer 14

Over 25%

Question 15

What is Monopolistic Competition?

Answer 15

• Large Number of Businesses and Consumers
• Products are very similar and not much scope to raise prices through quality.
• Lots of non-price Competition (loyalty cards, branding)

Question 16

What is a Oligopoly?

Answer 16

• Where a market is dominated by a few large firms
• May be other smaller businesses that follow the oligopolistic in term of price and products
• Suggested that oligopolistic collude (secretory agree) to keep prices higher than if the market was competitive
• Price does not really change

Question 17

What is Market Size?

Answer 17

Is the number of individuals in certain market who are potential buyers and/or sellers of product or service

Question 18

Why is it important for a business to have an accurate idea of market size?

Answer 18

• If it is launching a new product:
  • Small market size large volume of sales is unlikely
  • Large market more potential sales but but probably has a number of established firms to compete against

Question 19

What is Market Growth?

Answer 19

Refers to an increase in the demand for a businesses products over a period of time

Question 20

Why is Competition regarded as beneficial?

Answer 20

• Forces business to be efficient in terms of keeping costs as low as possible, keeps prices down for consumers
• Encourages innovation and emphasis on meeting consumer needs

Question 21

Disadvantages of Competition of Stakeholders?

Answer 21

• Small Firms can’t gain economies of scale.
• Consumers have to pay higher prices because of this
• Employees - competitive pressures to keep costs Down may impact negatively on conditions of work, wages, overtime etc
• Suppliers - May be little loyalty to the supplier especially if the business is under a lot of competitive pressure

Question 22

What is Market Dominance?

Answer 22

Is a measure of the strength of a business and its products relative to the Competition

Question 23

Ways which a business Could increase its market share and dominance.

Answer 23

• Being aware of consumer needs
• Selling more to existing customers
• Finding our why old customer no longer use your products
• Having a clear marketing plan

Question 24

What would merging or taking over another firm do to a business?

Answer 24

Increase its market share

Question 25

Examples of Barriers to Entry.

Answer 25

- Large Start Up Costs (Capital Costs such as premise and machinery) - Having the marketing budget to break consumer loyalties - Inability to gain economies of scale - Inability to gain economies of scale - Possibility that existing businesses will start a price war - Legal restrictions

Question 26

Examples of Barriers to Exit.

Answer 26

- Difficulty of selling capital - High Redundancy Costs - Contracts with Suppliers (legal challenges if these are not honoured)

Question 27

How do Barriers to Exit make a market less competitive?

Answer 27

- Deters new entrants because it is risky and expensive to leave he market if the venture fails - Makes Market less competitive and makes firms in the market more dominant

Question 28

How is Organic Growth achieved?

Answer 28

By increasing a firms sales

Question 29

How can a firm achieve Organic Growth (By Increasing it Sales)?

Answer 29

- Selling more to existing customers | - Finding new customers

Question 30

Organic growth could lead to [..................] as long as other business are no growing at the same rate.

Answer 30

Market Dominance

Question 31

What is a merger?

Answer 31

When two companies join together to form a new larger business

Question 32

What is a Acquisition?

Answer 32

Involves acquiring control of another company by buying the majority of its agree.

Question 33

Why might a takeover go smoothly?

Answer 33

Because shareholders of both companies see it to be beneficial

Question 34

Why might a Acquisition not go smoothly?

Answer 34

It may be resisted and regarded as hostile

Question 35

How might a smaller firm compete against a bigger firm?

Answer 35

- Offer better customer service | - Offer linger opening hours

Question 36

Who is responsible for enforcing competition law in the UK?

Answer 36

The Competition and Markets Authority (CMA)

Question 37

What does the CMA investigate?

Answer 37

- Anti-competitive agreements - The abuse of dominant market position - Prevent actions that would allow the abuse of a dominant market position by a firm to the detriment of consumers in that market

Question 38

What kind of sanction can the CMA apply?

Answer 38

- Business can be fined up to 10% of their global turnover - Custer’s and Competitors of the Firm involved can sue for damages - Individuals can be disqualified from being a company director - CMA can find an individual