Copyright 2007 – Biz/ed Competition in Markets BTEC Business
Copyright 2007 – Biz/ed Competition is Key Competition ensures we the consumer get: –Lower prices –Higher quality goods –Choice
Copyright 2007 – Biz/ed Government Guidance Governments….. –Provide a legal framework which companies much operate in –Ensure companies do not manipulate prices or products –Helps ensure products are safe and reliable. (I.E. regulates car seat guidelines.)
Copyright 2007 – Biz/ed Competition Because firms are competing against each other, they are constantly looking for the least cost, greatest profit method of production
Copyright 2007 – Biz/ed Market Structures Firms operate in markets. These are structured differently. 3 types of market structures: –monopoly –Pure Competition –oligopoly
Copyright 2007 – Biz/ed Monopoly a market structure where there is a single seller of a unique product no competition, as the firm = the market potential for abuse of monopoly position the market may be a natural monopoly –having competition amongst firms in this kind of market would be costly for the consumer, or unsafe
Copyright 2007 – Biz/ed Example of Monopoly there may be significant savings to be had from having one company running the market CN Rail and Ontario Hydro were Canada’s first two monopolies. is it safer to have one company in charge?
Copyright 2007 – Biz/ed Monopoly Business’s can limit supply once they have a monopoly. Limited supply = higher prices In Canada, there are laws preventing most monopolies.
Copyright 2007 – Biz/ed Pure Competition A market where anyone can sell anything. Can be difficult to adjust prices -I.e pizza shops. Most prices are around the same. High prices and people won’t buy.
Copyright 2007 – Biz/ed Pure Competition Low brand preference amongst consumers –i.e I don’t really care which pizza I get –No “extras” to service provided.
Copyright 2007 – Biz/ed Pure Competition Advantages of pure competition? –Allows anyone to start their own business –Can get products cheaply –Diversity Disadvantages?
Copyright 2007 – Biz/ed Oligopoly markets dominated by a small number of large firms the most common types of market large firms are involved in selling either identical or very similar products significant barriers to entry into the industry
Copyright 2007 – Biz/ed Example of Oligopoly Gas companies (Esso, Shell, Sunoco, PetroCan) Communications (Bell, Rogers)
Copyright 2007 – Biz/ed Oligopoly If all set their prices low, they lose very little money If 1 lowers their price, they gain in the short term, but will lose out in the long term If all keep prices high, consumer has no choice
Copyright 2007 – Biz/ed Oligopoly Rules Companies may not meet to set prices Oligopoly companies have “unwritten rule” to keep prices high. –I.e. Bell and Rogers – both are similarly priced.
Copyright 2007 – Biz/ed MonopolyPure Competition Oligopoly Number of Sellers Many Few Barriers to Entry Very HighLowHigh Type of Substitute Products No good substitutes Very GoodVery good differentiated products Nature of Competition AdvertisingPrice onlyMarketing, features, price Pricing PowerSignificantNoneLittle to significant.
Copyright 2007 – Biz/ed Group Activity Get into groups of 3 You will be given a product and a market type. On the white boards, outline why your product will sell best in your given market structure. Also, state why it would NOT sell well in the other market types.
Copyright 2007 – Biz/ed Activity 1 #1: Monopoly: Oil #2: Pure Competition: Cell Phone #3: Oligopoly: Ebola Vaccine
Copyright 2007 – Biz/ed Activity 2 #1 – Oligopoly: Tablets #2 – Monopoly: Printing paper #3 – Pure Competition: Business Textbook
Copyright 2007 – Biz/ed Activity 3 #1 – Pure Competition: Running Shoes #2 – Oligopoly: Fridge #3 – Monopoly: Cars