The Competitive Environment

Question 1

What does the government have to monitor in monopolies that try and reduce competition

Some practices might include:

Answer 1

• Increasing prices
• Restricting consumer choice
• Raise barriers to entry by spending huge amounts of money on advertising for example. Or lower its prices temporarily making it difficult for a new business to get established

Question 2

Positive and negative effects of the competition policy on businesses

Answer 2

Positives= Competition policy encourages competition therefore will:

• Encourage innovation
• Encourage efficiency
• More businesses in the market

Negatives= Competition policy acts as a constraint on their activities as it slows processes down and costs money

Question 3

Determinants of competitiveness

Answer 3

• Number and size of businesses in the market (monopoly, oligopoly or perfect competition)
• Extent of barriers to entry (high marketing costs of one business so others have to compete with that, emphasise place and promotion)
• Extent to which products can be differentiated, products which are similar focus on price to get a competitive advantage and products that are different focus on place and promotion

Question 4

Impact on businesses of a competitive environment

Answer 4

• Price (Competitive pricing)
• Profit (Profit available in a highly competitive environment has to be shared between greater number of players)
• Communication with customers (under pressure to meet customer needs)
• Innovation (USP aids survival in a competitive market)
• Marketing (more money spent on advertising)

Question 5

Define barriers to entry

Answer 5

Factors which make it difficult or impossible for businesses to enter a market and compete with existing producers/businesses

Question 6

Define a monopoly and an oligopoly

Answer 6

Monopoly= a market dominated by a single business

Oligopoly= a market dominated by a few large businesses