Market Characteristics Flashcards
What is market size?
The collective value of the goods/services that buyers purchase.
What is market growth?
This is the % change in size of the market, measured over a specific period.
How do you measure % change?
% change = difference / orig x100
What is market share?
The percentage of total sales (by value) that a business has in a specific market.
How can you increase market share?
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.
What is competition?
Competition is rivalry amongst sellers .
What is a market?
A market is any situation where buyers and sellers interact
How is price established?
Price is established through market forces.
What is a physical market?
They are fast growing due to convenience
What is a non physical market?
Still exist because of he personalisation they offer.
What is the difference between online and digital markets?
Online is where you purchase a tangible item whereas digital is non tangible and is downloaded.
What are barriers to entry?
The factors that could prevent a firm from entering a market.
What are the barriers to entry?
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.
What is economies of scale?
When output goes up, unit costs go down
What is a competitive market?
A market in which there are large numbers of firms, competing mainly on price, more product choice, low barriers to entry.
What are the characteristics of a competition market?
Lots of competitors, low prices and an example is farming.
What is a monopoly?
This is a market dominated by one seller, its any firm with more than 25% market share with 100% concentration.
What are the characteristics of a monopoly?
Prices are usually higher, less product choice, high barriers to entry, an example is Tesco.
How can a monopoly charge a lower price?
Through economies of scale, by buying in bulk they can negotiate unit costs and therefore afford to charge lower.
What’s an oligopoly?
This is where a market is dominated by few firms.
What are the characteristics of an oligopoly?
Few firms dominating, tend to be high prices, may have to compete on non-price differences.
What is collusion?
When rival companies cooperate for their mutual benefit and to usually lower competition.
What is monopolistic competition?
This is a market structure with many competing firms each of whom supply a slightly different product.
What are the characteristics of monopolistic competition?
Several firms, more choice of product, value for money so similar lower prices, eg hair dressers.
What is market power?
The ability of a firm to influence or control the terms and conditions on which goods are bought and sold.
What is market dominance?
A measure of market share compared to competitors
What are barriers to exit?
Factors that prevent a firm from leaving a market, even if they wanted to.
What are the barriers to exit?
Difficulty of selling off capital
High redundancy costs
Contracts with suppliers - will face legal challenges if they do not honour these.
Leases with Landlords
What are overheads?
Costs not directly related to production eg rent
What are mergers and acquisitions examples of?
External growth
What is a merger?
This is where two companies join together to form a new larger business
What is an acquisition?
This is where control of another company is achieved by buying a majority of its shares.
What are the benefits of external growth (mergers or acquisitions) for the business?
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
What are the disadvantages of mergers or acquisitions?
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)
What is diseconomies of scale?
As output increases, unit cost increases
What is organic/ internal growth?
This involves the expansion from within a business
What are examples of organic growth?
Opening new stores Launching new products Employing more workers Increasing production capacity Investing in new technology Launching existing products into new markets eg countries
What does CMA stand for?
Competitive markets authority
What is the CMA’s main aim?
To promote competition
What will this mean by promoting competition?
Lower prices
Increased quality
Non - price differences
What do the CMA do?
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
What is the cartel offence?
When businesses decide not to compete to increase their profits. It includes bid rigging, price fixing, market sharing.
What is bid rigging?
This is when there is a secret agreement among some or all of the bidders about who should win a bid.
What is price fixing?
When two or more businesses come together and agree on pricing.
What is market sharing?
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.
What sanctions can the CMA apply?
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
What are the impacts of regulation on businesses and stakeholders?
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
