Chapter 34: Marketing and Comopetitiveness

Markets and market structure• In general, four different market structures explain the broad

range of competitive environments in which most firms operate:• Monopoly – if there is little or no competition in providing a

particular product or service, and therefore few or no alternative supplies of it, monopolists can charge high prices and offer poor service

• Oligopoly – a market dominated by a small number of large businesses, rivalry between firms usually takes the form of ‘non-price competition’ such as special offers and advertising

• Monopolistic Competition – where a large number of firms are competing in a market, each having enough product differentiation to achieve a degree of monopoly power and therefore some control over the price they charge

• Perfect Competition – all the sellers produce homogeneous (identical) products and are ‘price takers’, meaning that they accept the ruling market price.

Characteristic Perfect Competition

Monopolistic Competition

Oligopoly Monopoly

No. and size of firms

Many and small Many and small Few and large One (in theory it’ more than 25% of market)

Nature of Product Identical Differentiated Differentiated Unique

Examples Foreign exchange market, stock market, fruit and veg

Hairdressers, plumbers, cafes and insurance companies

Supermarkets, banks, motor vehicle manufacturers

Nationalised industries (pre-1980s), Royal Mail (for letters)

Barriers to entry

None; it’s easy to enter or leave market

None; it’s easy to enter or leave the market

High barriers to entry

High barriers to entry

Effect on business

Price takers, cost-efficiency needed to survive, very low profit margins

Some control over price, benefits from marketing

Non-price competition, high overheads, high profit margins, collusion between firms

Price setter, can become complacent, power depends on importance of the product, high profit margins

Porter’s five competitive forces

• 5 features of markets that determine how a successful business might cope with its competitors

• Intensity of competitive rivalry• Threat of entry to the industry by new

competitors• Threat from substitute products or services• Power of suppliers• Power of buyers

Factors that determine whether a firm is competitive

• Investment in new equipment and technology• Staff skills, education and training• Innovation through investment in research and

development• Enterprise• The effectiveness of the marketing mix• Incentive schemes for staff• Improvements to operational procedures• Quality procedures• Financial planning and control

Methods of improving competitiveness

• Marketing

• Reducing costs

• Improving quality

• Staff training