Chapter 43- The Competitive Environment

Question 1

4 Determinants of competitiveness

Answer 1

1. The number and relative size of businesses in the market
2. Extent of barriers to entry
3. The extent to which products can be differentiated
4. Legal factors

Question 2

The number and relative size of businesses in the market

Answer 2

In some markets such as farming, a large number of businesses compete with each other – none of these businesses are particularly large compared to other businesses in the market -so the market share of any single business is small – in the railway market, a few large businesses so share is large

Question 3

Extent of barriers to entry

Answer 3

in certain markets barriers to set up a business is high – in the rail transport, mobile etc. government licenses are given to only a select number of platforms. In the drug, industry, newer drugs are protected by patent.

This prevents other businesses from copying them – when barrier levels a high for entry, competition tends to be lower – promotion and place then become context of competition

Question 4

The extent to which products can be differentiated

Answer 4

In some market’s products are the same whichever company produces them – typically, there are standards to which products conform. Where product differentiation is strong the non-price elements of the marketing mix such as promotion tend to be emphasised by businesses.

Question 5

Legal factors

Answer 5

: Competition between businesses is generally seen as being in the best interests of customers – they can shop between businesses offering the same or similar products for the best deal – this means that businesses have to offer what the customer wants or face closing down through lack of customers.
- Monopoly is usually argued to be bad for customers – they are
forced to buy from one supplier whatever the quality of the product
and whatever the prices
- The monopolist has enormous power over customers and acts to
maximise the benefits itself
- Monopolies, therefore, tend to be controlled by governments

• Firms can acts as if they were a monopoly by colluding – this means
  they get together, usually to fix prices and output in a market and
  forming a cartel

Question 6

Monopolies

Answer 6

Exists where there is only one firm in the market

Question 7

Impact on businesses of a competitive environment

Answer 7

Price: In a highly competitive market, businesses have less control over the prices they charge – prices are likely to be forced down – a business that charges a price that is significantly higher than those of rivals risks losing sales because consumers can switch easily from one supplier to another – if business can effectively differentiate its product there may be some scope for price increases.

Profit: The profit available in a highly competitive market has to be shared between a great number of players – profit margins are likely to be squeezed because prices will be forced down – however, businesses that can operate more efficiently and reduce their costs may be able to enjoy higher profits than rivals that operate with a higher cost base

Question 8

Operating in large markets

Answer 8

• National and global markets are likely to be more challenging for
  businesses
• Even in large markets that are dominated by just a few producers,
  competition will still be severe
• In large competitive markets, it is vital for businesses’ to monitor the
  activities of rivals – a business’s needs to be aware of the pricing
  strategies that rivals use, changes in their product ranges, the
  promotional and production methods used, and any other
  information that might have an impact on the market .