1. INTERACTION OF FIRMS IN THE MARKET - COMPETITION
WHY firms compete with each other ?
1] Attain their goals ( e.g.; Profit maximisation, Sales maximisation, satisficing etc)
2] Increase Market share
MARKET SHARE:
“The part of the total sales met by an individual firm”
MARKETING: “Marketing involves identifying and then satisfying consumer needs and wants”
The 4 P’s that govern marketing are:
a) PRODUCT b) PLACE
c) PROMOTION d) PRICE

2. HOW do firms compete against each other?
1) PRICE COMPETITION
2) NON- PRICE COMPETITION
PRICE COMPETITION - EXAMPLES:
a) Sale price
b) Discounts
c) Buy-one-get-one-free
d) Interest free terms
e) Loss leader: an item sold deliberately at such a low price that the firms make a loss on it. This is done in the hope of attracting customers into the shop, hoping they will buy other items as well. They expect the loss to be recovered from the sale of the additional items!

3. NON - PRICE COMPETITION
Producers make their products ‘appear different’ and superior to their competitors’ products.
1) PRODUCT DIFFERENTIATION
Producers give their products some ‘real’ modifications and make it actually different to other products
2) PRODUCT VARIATION
PRODUCT DIFFERENTIATION
a) Advertising b) Packaging
c) Branding d) Services
Sponsorship f) Location
g) Loyalty schemes h) Competitions
PRODUCT VARIATION
Vertical Product Variation
Production Modification
New features added to a product e.g Airbags in car
Same product designed for different income levels e.g Toyota car models.

4. PRICE COMPETITION - SIZE OF FIRMS
INDUSTRIES COULD COMPRISE OF…...
MANY SMALL FIRMS
SOME DOMINANT LARGE FIRMS
FEW LARGE FIRMS
Price competition avoided
Price competition acceptable
Price leadership by dominant firm
No firm greatly disadvantaged
Price competition could lead to ‘Price war’
Dominant firm gains advantage over small firms
E.g., competition between dairies
E.g., competition between car manufacturers
E.g., competition between supermarkets & dairies

5. NON-PRICE COMPETITION ADVANTAGES & DISADVANTAGES
CONSUMERS
DISADVANTAGES:
Prices increased
Unwanted purchases
Non –existing demand generated
ADVANTAGES:
More choice / Variety
Better Quality
Better service
Opportunities to win Competitions
Increase in Knowledge of the product

6. PRODUCERS DISADVANTAGES: Increased costs of production Reduced profit
Increases demand
Greater Sales & Profits
Avoids Price Wars
DISADVANTAGES:
Increased costs of production
Reduced profit