Topic 2: Competition

Topic 2: Competition

1. Degree of competition

   • This is an important feature for any business as the degree of competition it faces from rival enterprises. As a result, marketing departments or planners need to be aware of the competitions they face and thus design marketing activties that they believe will give their business a competitive advantage.
   • There are certain factors which determine the level of competition. These include: 1) the number of businesses in the market - that is the number of direct rivals. 2) the attitudes and values of decision-makers in competitor businesses. 3) the nature of the product being sold and the size of the market.

2. There are different markets which can be classified into four types, which each has different structure and different levels of competition. These market types are: 1) monopoly 2) oligopoly 3) monopolistic 4) perfect competition

   • Monopoly: is a market with one seller, however, a business with a market share in excess of 25 per cent is often referred to as having ''monopoly power''.
     • In monopoly market there is only one business which is the operates. The seller in the monopoly market would not face any competition as only one business or seller operate in a monopoly market. As well as in monopoly market a seller has significant control and power too set prices because consumers would not have an alternative supplier.
     • Even if a business does not have 100 per cent of the market, a business with a significant market share can exert consideration power. In these near-monopoly conditions, a dominant business is called a '' price maker'' as it has a significant control over the prices. it can change customers for its products.
     • Example of monopoly is: water and sewage.
   • Oligopoly: is a market which is dominated by a few businesses.
     • In an oligopolistic market, there are usually few dominant businesses
     • Example of oligopolistic markets which are in the UK: motor vehicle manufacturing, food and household supplies (dominated by supermarkets) and banking.
     • In oligopoly market the businesses within this market can be very unpredictable, also the competition in this market is very fierce.
     • - Businesses within this market avoid competition on price. - A key feature of oligopoly markets is interdependence (depend on each other e.g. one falls the other may follow).
   • Perfect competition: occurs in a market in which there are many businesses relatives to the size of the market. All businesses sell similar products, with little product differentiation evident
     • This market is very competitive as there are many businesses which are supply goods to many customers. As the competition is intense in this market this had knock affect on the prices as it went down to the minimum. Also this meant that there will not customer loyalty as there product differentiation as a result, customer would always shop with the business which offer the best I.e. the bes price.
     • firms which are in perfectly competitive markets are described as ''price takers''. This is because the competition is very intense which means the businesses cannot control prices as do not have the ability to control it.
     • As perfect competition market means for businesses that they do not have customer loyalty and any price setting power makes it difficult for businesses to survive in perfectly competitive markets.
     • The only way for businesses to survive in prefect competition market is by reducing costs of production.
   • Monopolistic competition: occurs in a market n which there are many businesses relative to the size of the market but in which products are differentiated.
     • The difference between monopolistic competition and perfect competition relates to the nature of the products or service supplied.
     • In monopolistic competition the products are differentiated. The typical size of a business in a market characterised by monopolistic competition tends to be small and the scope of for marketing is limited.
     • Businesses which are in this market tend to cope with changes in the environment by altering their marketing activities.