1. External influences part 3
The competitive environment
(how competition helps both firms and consumers)
Collusion
Non-price competition
Oligopolies
Predatory pricing

2. Defining what a competitive market is
Intense rivalry between firms – either online or physically
The more firms = the more competitive the mkt = greater utility for consumers…..but not necessarily for businesses
Size and structure of the market very important though e.g. market share allocation and concentration ratios
Competition restricts abnormal profit being ‘kept’ by the firm and pushes prices down
USPs, collusion or predatory pricing can get round this problem of intense competition if you are a business
Marketing and branding very important influencer on competition

4. Degrees of competition……
Some firms dominate the market – economists call them oligopolies or monopolistic (over 25% of market share)
Domination is usually bad news for consumers as prices go up and choice is restricted by dominating firm(s)
CMA regulates against these potential abuses (see law slides)
Firms desire monopolisitic positions as they can extract maximum profits with minimal costs
In truth most markets are oligopolies
High levels of non-price competition is the key influencer

5. Big market, little market……
Most competitive markets have lots of small firms competing on homogenous (near- identical products)
These products are called commodities (e.g. coffee, petrol, milk)
Commodity markets often have intense rivalry as price is the overwhelmingly most important aspect of the product selling or not
Product differentiation is the only way forward for businesses in this type of market
Some markets are too small for more than a couple of firms to operate in
Large firms can dominate small markets and stop new entrants from coming into that market and competing
These markets tend to be less contestable and there are barriers to entry into that market even if you wanted to join it

6. Typical 6 marker…..
Analyse two factors which could decrease the level of competition within the car market (use the visual here  to help prompt you…)
Consolidate. Read through chapter 47 and write 5 questions to test your partner
Slide 7 – Collusion. Investigate and complete the case-study table

7. Anti-competitive business of collusion…
Anti-competitive business of collusion…..it happens – Airlines and Banks
Click on the images and video links and read/watch the reports
For each complete a table of WWWW&H

8. Research using the links and fill in the table
BA/Virgin price fixing
UK Banks – LIBOR rigging
What happened? / How did it happen?/ When did it happen? / Who was affected/took part? /How did it work?
What happened? / How did it happen?/ When did it happen? / Who was affected/took part? / how did it work?

9. Review – what answer fits the question?
The answer….
The question……
A new company may enter the market or one might leave easily
Why is it hard to break into small markets with strong established brands in it?
Firms want as much control as possible over price and although it is illegal to collude some firms may be tempted to do this
How is it that Mars can make more money selling Dolmio sauce than Mars bars?!
By looking at the concentration ratio (usually the top-three firms’ market share) we can see how competitive it is
Why are so many brands that are well known owned by big US firms?
Because there isn’t enough market size to justify the huge costs of trying to break through exist customers’ purchasing habits
How can we measure the level of competition in a market?
The stronger the brand the stronger the sales meaning the greater your market share which leads to greater revenues for that product
Why might firms say they welcome competition but don’t really mean it?
The power of advertising and marketing was developed in the US in the 1930s. This has led of huge oligopoly companies controlling many individual brand names
What is a contestable market?

10. Deeper research – collusion new stories
/British-Airways-fined-58.5m-for-fuel-price-fixing.html
cartel-price-fixing
atlantic-collusion/
fixing-fine-overturned/
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11. One extra - humbled post 2008? (click on right image for article)