1. The Concept of Competition
Ready, Set, Compete!
The Concept of Competition

2. 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

3. Direct 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

4. 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
They tend to plan their competitive strategies with their direct competitors in mind
A movie theater is more likely to try to take business away from another theater than from a supermarket

5. 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: back to school, after Christmas, spring clearance, President’s Day, etc.
Price Matching: (‘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;

6. 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

7. Nonprice Competition Service and convenience often make the difference
Most businesses use a combination of price and nonprice competition to attract customers

8. Market Structures Four main types of market structures:
Pure competition
Monopolistic competition
Oligopoly
Monopoly

9. Pure Competition
A lot of businesses sell identical products to many buyers
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

10. 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

11. 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

12. 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

13. Deregulation
Because of deregulation, few regulated monopolies exist in the U.S. today
Telephone service was once a regulated monopoly, but now there are many phone companies (Bell)
A few regulated monopolies still exist in some areas, such as an electric company offering service in a rural location

14. Government legislation of competition
In a private enterprise system, governments regulate businesses to a certain extent to encourage ethical and legal competition
Legislators in the U.S. have passed several pieces of legislation to promote competition
Sherman Antitrust Act, 1890
Clayton Act, 1914
Federal Trade Commission Act, 1914
Robinson-Patman Act, 1936
Celler-Kefauver Antimerger Act, 1950

15. Without competition, the private enterprise system would not exist
Buyers and sellers interact in the marketplace to determine what products will be produced and what prices will be charged for those products
Businesses have many competitors in a private enterprise system
National chains of drugstores compete with independently owned stores and with stores operated by supermarkets
Competition is good for business

16. Benefits of Competition
Encourages new businesses to enter the marketplace
Makes businesses operate as efficiently as possible
Helps businesses make a profit

17. Benefits to Customers
If a business is going to attract customers away from other sellers, it must try to:
Develop new products to meet customers’ needs
Maintain or improve the quality of existing products
Provide more and better services
Provide wider selections of goods and services
Keeps prices down

18. Competition benefits society
The development of new and improved goods and services makes people’s lives more convenient and easier
Some new products help people to be healthier and live longer
New businesses are created which make more jobs available to a lot of people
Employed people who earn an income and have money to spend create a prosperous society