Competition in Economics Competition in Economics Abstract models and reality

Spectrum of competition Perfect competition Tiny firms Price takers Identical products Only normal profit Prod. & Alloc. efficiency Monopoly Single supplier Sets p or q. Price above cost? Abnormal profit Inefficiency?

Imperfection, e.g. Oligopoly Major & minor players Major & minor players High concentration ratio High concentration ratio Differentiation Differentiation Interdependence Interdependence Fierce competition? Fierce competition? Collusion? Collusion? Contestable? Contestable?

Competitive advantage Definition: –A distinctive feature that makes a business successful

Innovation PRODUCTNewLatestBestPROCESS Costs cut QualityFocus

Reputation Word of mouth Word of mouth Brands Brands Marketing Marketing

Relationships Trust Trust Value Value Inertia Inertia

Cost leadership Process innovation Process innovation Economies of scale Economies of scale Technical efficiency Technical efficiency

Differentiation Product innovation Product innovation Reputation/quality Reputation/quality Marketing Marketing

Focus Matching requirements Matching requirements Niche? Niche? Customise? Customise?

Barriers to entry/exit Natural: Natural: High start-up costs High start-up costs Sunk costs Sunk costs

Barriers to entry/exit Artificial: Artificial: Patents Patents Marketing budgets Marketing budgets Brand proliferation Brand proliferation Predatory behaviour Predatory behaviour Supply chain control Supply chain control