External Influences- Market Structure Flashcards
define competition?
rivalry amongst sellers
what is a market?
any situation where buyers and sellers are in contact to establish a price
market facts? (not memory tested just facts to know)
- can be physical and non-physical
- non-physical markets have grown rapidly because of the convenience that they offer
- physical markets still exist because of the personalisation they bring
- non-physical can be classified as being either online or digital
what is online shopping?
buying tangible goods and having them delivered
what is Digital shopping?
buying goods online to be used immediately through downloading
what is a competitive market?
a market in which there are a larger number of sellers. these businesses mainly compete through price
what is a monopoly (theory answer)?
a market dominated by one seller
what is a monopoly (CMA definition)
a firm with 25% or more of its industry’s market share
what is the CMA?
competition and market authority
who can block mergers?
CMA because monopolies aren’t good for customers
features of a monopoly?
- high prices
- low quality
- bad service
what is an oligopoly?
an oligopoly exists where a market is dominated by a few firms
what are the products and price like between oligopolies?
very similar
what do oligopolies compete with?
non-price differences
what are examples of non-price differences
- customer service
- opening hours
- reliability
- reputation
- warranty
- add-ons
define colluding
when businesses secretly agree to raise prices or fix prices and to reduce output to increase profits
barriers to entry of an oligopoly
very high barriers to entry:
- large start up costs
- hard to break customer loyalty
barriers to entry of a competitive market?
low
barriers to entry of a monopoly
high
define monopolistic competition
a market structure with many competing firms each of whom supplies a slightly differentiated product
barriers to entry of monopolistic competition
low barriers to entry:
- low market power of competitors
- easy to enter market
number of firms in monopolistic competition
many firms
number of firms in an oligopoly
few firms
prices of monopolistic competition
fair prices but similar
prices in oligopolies
higher prices but similar
equation for market growth
market growth= difference/ original x 100
define market share
expressed as the collective value of goods/ services that buyers purchase
define market growth
the percentage change in the size of the market, measured over a specific period
methods to increase market share
- sponsor campaigns or events
- focus on trends and target market
- celebrity advertise
- decrease price
- improve quality
- payment systems like klarna
- range of products
define barriers to entry
the factors that could prevent a firm from entering and competing in a market
barriers to entry examples
- large start up costs (cap total costs like premise and machinery)
- having the marketing budget to break customer loyalty
- inability to gain economies of scale
- possibility of existing businesses starting a price war
- legal restrictions such as patents
define patents
a government authority or license conferring a right or title for a set period, especially the sole right to exclude others from making, using or selling an invention
define economies of scale
when output increases, cost per unit decreases (bulk buy)
define barriers to exit
the factors that could prevent a firm from leaving a market, even if it wanted to
examples of barriers to exit
- the difficulty of selling off capital
- high redundancy costs
- contracts with suppliers
- leases with landlords
define overheads
costs not directly related to cost of making a product (eg rent)
what are the differences between market structures
- prices
- quality of products
- choice of products for customers
define market power
the ability of a firm to influence or control the terms and conditions on which goods are bought and sold
define market dominance
a measure of market share compared to competitors
define merger
where two companies join together to form a new larger business
define acquisition/ takeover
where control of another company is achieved by buying the majority of its shares
benefits of external growth (for the business)
- may gain new management with different skills
- will result in an increase in revenue and therefore market share (if in the same industry)
- may be able to meet customer needs more effectively with combination of resources
disadvantages of external growth
- may suffer from diseconomies of scale size (eg. communication problems)
- may take on extra debts that the business could struggle to repay if the strategy isn’t successful
- could result in redundancies
- could result in higher prices
- could result in dominant businesses dictating terms and conditions of market
define organic/ internal growth
involved expansion from within a business
examples of organic growth
- opening new stores
- launching new products
- employing more workers
- increasing productive capacity (eg new factories)
- investing in new technology
- launching existing products into new markets (international markets such as asia)
- having a franchise strategy
- lower prices
advantages of organic growth
- less riskier than external growth as you don’t need as much capital, smaller loans, if any are used, less chance of debt
- growth can be financed through internal funds ( retained profit)
- growth rate is much more sensible rate
disadvantages of organic growth
- growth rate is much slower, shareholders prefer more rapid growth in profits and revenue
- it may be difficult to grow in the current market because there might already be existing leaders
- if the market is shrinking growth may be difficult to occur compared to a growing market
what is the CMAs main aim
to promote competition for the benefit of its consumers
what does the CMA do
- investigates mergers and acquisitions which could restrict competition
- investigates where there may be abuses of dominant positions
- bring criminal proceeding against individuals who commit the cartel offence
- enforces legislations to tackle prices that make it difficult for consumers to exercise choice
define cartel
an agreement between businesses not to compete
what are the three cartel offences
- market sharing
- price fixing
- bid rigging
define market sharing (cartel)
when rival businesses agree to divide a market so participants are sheltered from competition (eg location)
what is price fixing (cartel)
when rival businesses agree what prices they’re going to charge (colluding)
define bid rigging (cartel)
when rival businesses communicate before lodging their bids and agree among themselves who will win and at what price
what sanctions can the CMA apply
- the business can be fined up to 10% of its global turnover
- the individuals can be disqualified from being a company director
- customers affected can sue the businesses that were anticompetitive
- the CMA can fine individuals if they fail to provide information following the CMA’s request
impacts of regulations on businesses and it’s stakeholders
- encourages businesses to compete to gain customers
- more choice for customers
- better value for customers
- more businesses operating within a given market
- better terms for suppliers
- less abuse of dominant positions
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