Chap18

• Competition


  Rivalry that exists between firms when trying to sell goods/services to the same group of customers/particular market
• Competitive markets


  • Markets with lots of firms competing with each other using a variety of methods to win competition such as advertising, promotions, special offers
  • Markets with little competition
• Competitive market


  • Large number of buyers and sellers
  • Identical products - close substitutes
  • Low barriers to entry - not technically difficult/not enough capital needed
  • No control over prices
  • Free flow of information (nature of products, availability, prices, methods and costs of production, availability of factors of production)
• Firms faced with competition

  Have to offer value for money products which means: Operating efficiently by keeping cost as low as possible, Providing good quality products and high level of customer service, Charging prices acceptable to customers, Innovating by constantly reviewing and improving - product differentiation
• Advantages of healthy competition for consumers

  • Lower prices - many substitutes -> can easily switch to other supplier if too expensive
  • More choice - (a) many suppliers to choose from -likely to differentiate from rivals - wider choice, (b) new entrants offering fresh ideas and more choice
  • Better quality - product must be value for money (price and quality in combination)
• Disadvantages of healthy competition for consumers

  • Market uncertainty or disruption- unprofitable firms leave the market - some consumers might be inconvenienced
  • Lack of innovation - firms make less profit -> not enough available in product development
• Advantages of competition for the economy

  • Resources are allocated more effectively as firms have to operate efficiently to survive - under pressure to keep costs down to be able to lower prices (be competitive)
  • Firms are more innovative - develop new products/production techniques/technologies/materials -> people have better standard of living
• Disadvantages of competition for the economy

  • Resources might be wasted as some factors of production are immobile (people made redundant and resources released need time to reallocate)