The Concept of Competition Ready, Set, Compete! The Concept of Competition Project #2 :: Snapshot Principles of Business

Competition Defined The rivalry between two or more businesses to attract scarce, or limited, customer dollars It is several businesses trying to attract the same market, or group, of customers One coffee shop in town has no competition. Other coffee shops enter the market and there is competition because customers have a choice

Direct or Indirect Competition Direct competition – occurs between or among businesses that offer similar types of goods or services Burger King, McDonald’s, Wendy’s; Shell, Texaco, BP They offer goods or services that will satisfy the same customer needs or wants

Direct or Indirect Competition Indirect competition – occurs between or among businesses that offer dissimilar goods or services Customers have only so much money to spend Movie theater – restaurant – bowling Businesses can be in competition with almost all other businesses

Types of Competition Price Competition – the use of prices to attract scarce customer dollars Examples of price competition Discount coupons: used by quick-serve restaurants (buy one pizza get one free) Special Sales: many businesses run sales throughout the year to attract customers looking for good prices (back to school, after Christmas, spring clearance, President’s Day, etc.)

Price Competition Price Matching: trend among discount businesses; assures customers that they are getting the lowest possible prices (‘we’ll never be undersold’; ‘we’ll beat any competitor’s price’) Rebates: offer to return part of the purchase price a customer pays for a good or service; this type of price competition has become popular for all types of products, ranging from automobiles to computers

Non-Price Competition Non-price Competition – the use of factors other than price to attract scarce customer dollars Businesses use a variety of factors other than price to compete: High quality (Customer needing laser eye surgery is more concerned that the doctor is well qualified) New features Additional customer services Updated facilities Large assortments Well-trained staff

Nonprice Competition Service and convenience often make the difference Banks have fairly uniform prices; customers may choose one bank over another because of special services from a teller or because a web site allows online account access at any time Most businesses use a combination of price and nonprice competition to attract customers

Market Structures Four main types of market structures: Pure competition Monopolistic competition Oligopoly Monopoly A lot of businesses sell identical products to many buyers

Pure Competition There is a plentiful supply of the product All business compete equally and charge about the same price Small farms in one area growing corn and tomatoes and selling them directly to customers for comparable prices Pure competition rarely exists on a large scale

Monopolistic Competition Structure most commonly found in a private enterprise system Businesses often change the prices of their products to be competitive A lot of businesses sell similar products that have only a few difference Shampoo, athletic shoes, laundry detergent

Oligopoly Only a few businesses sell all of the products These businesses control the market as well as the price of the products It is difficult for new businesses to enter the market and compete Automobile industry in the U.S. is an example

Monopoly The market is controlled by one business, and there are no substitute goods or services readily available Competition does not exist Usually is not allowed to exist in a private enterprise system because it: Prevents competition May raise prices Limits the availability of goods and services

Legislation Put video here (Jess) MBA site