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Competitive markets Markets no longer physical only – includes online Competitive means there is rivalry between firms It means no single firm dominates a market Consumers benefit from competitive markets Lower prices as firms have to reduce costs to compete More choice as firms have to improve existing products or introduce new ones to beat competition Firms have to work hard to maintain profits For example, try to develop a USP in order to be able to charge a higher price

Degree of competition - monopoly One dominant business – a monopoly Monopoly can be described as a market with a single supplier. But this is rare/non-existent In practice a monopoly is when a single firm dominates a market (Microsoft, Intel) which means it can raise its prices, and there is less choice for consumers Legally defined in the UK when a firm has a market share of 25% or higher (such firms are investigated to see if they are exploiting their position by raising prices) Monopolies can be broken up – eg BAA used to own Heathrow, Stansted and Gatwick, but was forced to sell Stansted and Heathrow so there was competition Firms try to build monopoly positions/market power so they can raise prices Why else is an iPhone £600 when it costs perhaps £100 to manufacture

Degrees of competition - oligopoly A small group of companies dominating a market is called an oligopoly Supermarkets Fast food restaurants Intense rivalry Occasional price wars, but because this leads others to follow, and so for profits to fall for all firms, mostly Non-price competition

Degrees of competition – fierce competition When there are many firms competing, which is typical of many markets Sandwiches for lunch Most commodities – bread, tea etc Where products are identical (or very close to) and so it is difficult for a firm to differentiate its product £4 at Orindis and £3 at Italian Taste or vice versa…. It means firms have to keep costs down in order to make a profit

Changes in the competitive environment The degree of competition can change over time A highly profitable and/or growing market will attract new entrants seeking to take some of the profits A loss making industry will be marked by firms closing and leaving the industry (steel industry in the UK) As firms enter a market, existing firms need to react. They will do this by: Cutting their price to retain customers. This means they must seek to lower costs or they will suffer a fall in profitability Increase product differentiation, or introduce new products. A perceived USP, perhaps of high quality, means a firm can survive if there is a new entrant. For example Design – Mini, Dyson even iPhone Unique features