How Competition Affects the Market

• Competition can be direct or indirect:

  • Direct competition occurs when the business is targeting customers with the same product as a competitor
  • Indirect competition occurs when firms sell different products but compete with each other for the customers disposable income e.g. cinema and theatre companies are in indirect competition
• Competition results in many benefits for the customer, such as

  • Businesses offer lower prices
  • Businesses produce better quality products
  • Businesses provide better customer service
• Competition occurs when at least two businesses are providing goods/services to the same target market

  • The more businesses in the market, the more intense the competition
• • However, the absence of competition reduces incentives for businesses to innovate, be efficient or offer consumers lower prices