Market Characteristics

Question 1

What is market size?

Answer 1

The collective value of the goods/services that buyers purchase.

Question 2

What is market growth?

Answer 2

This is the % change in size of the market, measured over a specific period.

Question 3

How do you measure % change?

Answer 3

% change = difference / orig x100

Question 4

What is market share?

Answer 4

The percentage of total sales (by value) that a business has in a specific market.

Question 5

How can you increase market share?

Answer 5

Aware of customer needs + meet them, sell more to existing customers, find out why old customers no longer use their products, use a variety of marketing techniques, merge with a competitor.

Question 6

What is competition?

Answer 6

Competition is rivalry amongst sellers .

Question 7

What is a market?

Answer 7

A market is any situation where buyers and sellers interact

Question 8

How is price established?

Answer 8

Price is established through market forces.

Question 9

What is a physical market?

Answer 9

They are fast growing due to convenience

Question 10

What is a non physical market?

Answer 10

Still exist because of he personalisation they offer.

Question 11

What is the difference between online and digital markets?

Answer 11

Online is where you purchase a tangible item whereas digital is non tangible and is downloaded.

Question 12

What are barriers to entry?

Answer 12

The factors that could prevent a firm from entering a market.

Question 13

What are the barriers to entry?

Answer 13

Large start up costs eg pre isle and machinery, having the marketing budget to break customer loyalty, the inability to gain economy of scale, the possibility that existing businesses will start a price war. Legal restrictions such as patents.

Question 14

What is economies of scale?

Answer 14

When output goes up, unit costs go down

Question 15

What is a competitive market?

Answer 15

A market in which there are large numbers of firms, competing mainly on price, more product choice, low barriers to entry.

Question 16

What are the characteristics of a competition market?

Answer 16

Lots of competitors, low prices and an example is farming.

Question 17

What is a monopoly?

Answer 17

This is a market dominated by one seller, its any firm with more than 25% market share with 100% concentration.

Question 18

What are the characteristics of a monopoly?

Answer 18

Prices are usually higher, less product choice, high barriers to entry, an example is Tesco.

Question 19

How can a monopoly charge a lower price?

Answer 19

Through economies of scale, by buying in bulk they can negotiate unit costs and therefore afford to charge lower.

Question 20

What’s an oligopoly?

Answer 20

This is where a market is dominated by few firms.

Question 21

What are the characteristics of an oligopoly?

Answer 21

Few firms dominating, tend to be high prices, may have to compete on non-price differences.

Question 22

What is collusion?

Answer 22

When rival companies cooperate for their mutual benefit and to usually lower competition.

Question 23

What is monopolistic competition?

Answer 23

This is a market structure with many competing firms each of whom supply a slightly different product.

Question 24

What are the characteristics of monopolistic competition?

Answer 24

Several firms, more choice of product, value for money so similar lower prices, eg hair dressers.

Question 25

What is market power?

Answer 25

The ability of a firm to influence or control the terms and conditions on which goods are bought and sold.

Question 26

What is market dominance?

Answer 26

A measure of market share compared to competitors

Question 27

What are barriers to exit?

Answer 27

Factors that prevent a firm from leaving a market, even if they wanted to.

Question 28

What are the barriers to exit?

Answer 28

Difficulty of selling off capital
High redundancy costs
Contracts with suppliers - will face legal challenges if they do not honour these.
Leases with Landlords

Question 29

What are overheads?

Answer 29

Costs not directly related to production eg rent

Question 30

What are mergers and acquisitions examples of?

Answer 30

External growth

Question 31

What is a merger?

Answer 31

This is where two companies join together to form a new larger business

Question 32

What is an acquisition?

Answer 32

This is where control of another company is achieved by buying a majority of its shares.

Question 33

What are the benefits of external growth (mergers or acquisitions) for the business?

Answer 33

May gain new management with different skills and talent
Will result in an increase in revenue and therefore market share
May be able to meet customer needs more effectively with combination of resources
May experience economies of scale

Question 34

What are the disadvantages of mergers or acquisitions?

Answer 34

May suffer from diseconomies of scale due to size ie communication problems (business/shareholders)
May take on extra debts that the business could struggle to repay if strategy isn’t successful (business / shareholders)
Could result in redundancies (employees)
Could result in higher prices (customers)
Could result in a dominant business dictating terms + conditions (suppliers)

Question 35

What is diseconomies of scale?

Answer 35

As output increases, unit cost increases

Question 36

What is organic/ internal growth?

Answer 36

This involves the expansion from within a business

Question 37

What are examples of organic growth?

Answer 37

Opening new stores
Launching new products 
Employing more workers
Increasing production capacity 
Investing in new technology 
Launching existing products into new markets eg countries

Question 38

What does CMA stand for?

Answer 38

Competitive markets authority

Question 39

What is the CMA’s main aim?

Answer 39

To promote competition

Question 40

What will this mean by promoting competition?

Answer 40

Lower prices
Increased quality
Non - price differences

Question 41

What do the CMA do?

Answer 41

Investigate mergers and acquisitions which could restrict competition
Investigate where there may be abuses of dominant positions
Bring criminal proceedings abasing individuals who commit the cartel offence (bid rigging, price fixing, market sharing)
Enforce legislation to tackle practices that make it difficult for consumers to exercise choice

Question 42

What is the cartel offence?

Answer 42

When businesses decide not to compete to increase their profits. It includes bid rigging, price fixing, market sharing.

Question 43

What is bid rigging?

Answer 43

This is when there is a secret agreement among some or all of the bidders about who should win a bid.

Question 44

What is price fixing?

Answer 44

When two or more businesses come together and agree on pricing.

Question 45

What is market sharing?

Answer 45

An agreement between competitors to divide the market Amon themselves by agreeing not to compete for each others customers or expand into each others markets.

Question 46

What sanctions can the CMA apply?

Answer 46

Fined up to 10% of global turnover
Customers and competitors can sue for anti-competitive behaviour
Individuals can be removed from position in business
Individuals can be fined if they fail to comply with request

Question 47

What are the impacts of regulation on businesses and stakeholders?

Answer 47

Encourages businesses to compete 
It improves quality 
Gives customers greater choice
Prices will be more competitive 
More businesses operating in a market
Existing businesses will see more competition and less market dominance
Powerful businesses can’t dominate prices from suppliers 
Can lead to sanctions