5.9

• What are the dynamics of competition?

  The changing nature of competition over time - influenced by other things like new technology, consumer trends, new entrants, and innovation
• what is meant by competitive market processes?

  how firms compete in a market - through prices, innovation, marketing, customer service or efficiency improvements - to attract consumers and increase market share
• what forces drive competition in markets ?

  • entry of new firms
  • new products/technology
  • changing consumer preferences
  • changes in costs (e.g raw materials)
  • government regulation or deregulation
• what are common competitive strategies?

  • price competition (undercutting rivals)
  • non-price competition (ads, packing, service)
  • product innovation
  • branding and loyalty schemes
  • cost efficiency improvements
• what is dynamic efficiency ?

  efficiency over time - when firms innovate, improve products or production methods due to competition and profit incentives
• what is creative destruction?

  when new products/technology replace old ones, making older firms or ideas obsolete
• benefits of competition for consumers

  • lower prices
  • more choice
  • better quality
  • innovation
  • improved customer service
• benefits of competition for firms?

  • motivation to be more efficient
  • incentive to novate
  • opportunity to build strong brands
  • potential for market expansion
• downsides of intense competition for firms ?

  • lower profit margins
  • pressure to cut costs (may reduce quality or wages)
  • risk of business failure if they can’t keep up
• how can competition change market structure over time?

  • can lead to consolidation (big firms take over small ones)
  • can drive inefficient firms out of
  • may encourage innovation that shifts market dominance
• what role does government play in maintaining competition?

  • regulation of monopolies
  • competition law (e.g preventing collusion or abuse of power)
  • encouraging contestabilty in markets