Competitive Markets

Competition Is the rivalry between firms when trying to sell goods In a particular market. In some markets there is a lot of competition. In competitive markets there are likely to be a few common features such as: A large number of buyers and sellers, Firms have basically no control over price charged because if they charge more than their rivals they will lose business. Competition and the firm Generally, firms do not welcome competition. Most firms would prefer to dominate the market and become a Monopoly because they have no threat of rivals, and can alter prices and quality with ease.

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There is also less pressure to be efficient and innovative. This reduces the effort for the company to survive and succeed. When faced with competition, firms have to offer products that give consumers value for their money. This Involves: operating efficiently by keeping costs as low as possible, providing good quality products with high levels of customer service, charging prices which are acceptable to customers, and reviewing and improving the product. The main disadvantage too firm operating in a competitive market is that the mount of profit made will be limited.

In markets where competition Is fierce, prices are likely to be lower and the potential for profit also lower. The total profit in the Industry has to be shared between many firms. Competition and the consumer Lower prices: In a competitive market firms cannot overcharge consumers. If one firms tries to raise its price it will lost a lot of Its business. This Is because the market Is full of good substitutes and consumers can easily switch from one supplier to More choice: Competition means there are many alternative suppliers to choose from. Where possible, each supplier is likely to differentiate its product from those of rivals.

This helps to widen choice even more. Competitive markets will also have a constant stream of new entrants offering fresh ideas and even more choice. Better quality: Firms that offer ‘shoddy goods in a competitive market will lose business. Consumers are rational and will look for value for money. This means they consider both the price and the quality of products when deciding what to buy. Modern consumers are more aware and better informed than ever before. Market uncertainty: It could be argued that there may be some uncertainty or sorption in competitive markets.

This is because unprofitable firms eventually leave the market. This means that some consumers might be inconvenienced. Lack of innovation: It could be argued that innovation in a competitive market might be lacking. This is because firms make less profit in competitive market. As a result, they may not have enough profit to invest in product development. Competition and the economy One of the main advantages of competitive markets is that resources will be allocated more effectively. This is because firms have to operate efficiently to survive.

They are ender pressure to keep their costs down so that their prices are lower. It is also argued that firms in competitive markets are more innovative. This is because innovative firms can get a competitive edge over their rivals. This means that firms will develop new products, new production techniques, new technologies and new materials. The economy will benefit from this because people will have a better standard of living. Economics in practice: The retail clothes market (a) In this example, the I-J market for clothes is competitive, this is because there are many other companies which sell clothes in the I-J. ) Internet will make markets in general more competitive because internet can provide lots of information to firms, so if a company wanted to see what price they should set, they could compare it to other companies and change the price accordingly. (d) Firms in the clothing market might differentiate their products by having different (e) Consumers could benefit from competitive markets because companies try get lower prices and higher quality products to encourage consumers to buy their products, this would be a benefit because consumers have to pay less for better products. Being in a competitive market means

There are a large number of firms in the market, New firms can set up easily in the market, Firms know what their competitors are doing, Firms sell very similar products to one another, Little or no market power for each firm, Firms tell us what would happen if you put prices up and down. Outcomes of competition Competition is said to encourage enterprise, efficiency and widen choice for consumers, It also encourages firms to improve productivity, to reduce prices and to innovate, To compete successfully firms will aim to try offering lower prices to consumers, Profit acts as a motive for firms.