1.6 Competition Within Free Markets: Types & Summary A market is a place buyers and sellers meet to make exchanges. Free market is a market where the government doesn't intervene in day-to-day economic activities, such as setting prices or telling businesses what they can produce. There are four general types of market structures: - Perfectly competitive markets - Monopoly - Monopolistic competition - Oligopoly Perfectly competitive markets - Characterized by a large number of small businesses that sell the same types of products with the same characteristics. - It's easy for businesses to enter the market and leave it. - Everyone has all the information and technology needed to make smart and informed decisions in the marketplace. - Businesses have to compete on price because all the products are basically the same. - In the real world, a perfectly competitive market does not exist. -The closest example is like oranges at your Monopoly - One seller. - It's very hard for new businesses to enter the market. - For example, a drug company with a patent on a new drug will have a monopoly on that medicine until the patent expires. - No competition, it has a great degree of power in the market. - It can determine how much of a good or service to supply the market. - Great deal of power of the pricing of its goods and services. - The business can charge a price for its goods and services as high as buyers like. Monopolistic competition Oligopoly. - A large number of small businesses. - A few large businesses. - Don't sell identical products, they sell similar products. - Sell identical or very similar products. - Businesses can compete not only on price but also on different characteristics of their products. -For example, there is a wide variety of clothing. - Pretty easy for businesses to enter and leave the market. - There's also a good deal of information on prices and technology available to businesses and consumers. - The information is not perfect because it's hard to determine which product is the better deal if they are - Require a high degree of initial capital investment, which makes entry by new businesses difficult. - Compete on price and other characteristics of their products and services. - Examples are oil industry and auto manufacturing. grocery store. not identical. 1.7 How The Competitive Environment Affects Business: Examples & Importance Market competition occurs when multiple businesses or individuals compete in selling goods and services in the market place. Market competition helps provide the best products and services at the best price. Competition can be perfect or imperfect. Perfect Competition vs. Imperfect Competition Perfect competition - Occurs when there are numerous businesses and no business has market power. - All goods or services offered by a seller and its competitors and indistinguishable to consumers. Imperfect competition - Occurs when there are fewer competitors - Each business has the ability to differentiate its product or service in a way other than by price. - An example is a Smart phone. - The only strategy a seller can employ is pricecutting. The consumer will pick the cheaper product. - An example; two competing supermarkets, If both of the supermarkets stock the same brands of soup, milk, and frozen pizza, they may employ sales and price cutting measures to attract customers. Rules and Laws from government can regulate market competition. Governments, establish lines that businesses cannot cross. Examples include consumer protection laws against fraud and false advertising and intellectual property laws that prevent a business from ripping off another business' intellectual property, such as patents, copyrights and trademarks. Strategies to defeat competition, some company can do strategies to gain a competitive advantage, cost leader, which means he does it cheaper than his competitors, try to differentiate through perceived consumer value by being innovative and to meet more of potential customers' needs and wants. Benefits of Competition, Free market competition is generally good for consumers and society. Competitors will try to win market share by cutting costs, improving efficiency, lowering price and innovating by either creating new products and services or improving upon old ones. In other words, competition tends to give consumers better goods and services at lower prices. 1.8 Types of Competitive Advantage: Cost, Product, Niche & Sustainable Advantages Competitive advantage is a set of unique features of a company and its products that are perceived by the target market as significant and superior to the competition. It is the reason behind brand loyalty. There are three different types of competitive advantages; 1. Cost 2. Product/service differentiation 3. Niche competitive Cost competitive advantage - A company is able to utilize its skilled workforce, inexpensive raw materials, controlled costs, and efficient operations to create maximum value to consumers. - Example, Walmart uses the cost advantage strategy by providing a very large selection and low prices via its retailer strength and size. - Nissan, have years of experience producing cars in a very cost-effective manner. - Other companies, use offshore manufacturing to keep the costs of their products down. - Ryanair airline company is removing two of its three toilets in each airplane to increase the number of seats and drive down ticket costs - Companies may also receive government subsidies, cash grants or loans distributed to activities it wishes to promote or is seen as a public good. These help to pass on lower costs on to Product/service differentiation - Having a valuable, unique offering for its consumers resulting in consumer loyalty. Niche competitive - Seeks to target and reach a single segment of the market. - This strategy works very effectively for smaller and new companies. - A single segment of the market can be based on sex, income, lifestyle characteristics, and even geography. - For example, a bakery bakes treats for cats and dogs. - The main challenge facing companies is the ability to keep their competitive advantage. The most successful companies create an advantage that is unique just to the company and not easily copied. - Example Rolex is known for superior products, and RitzCarlton hotels are known for their unsurpassed customer service. their customers. Example is local farm. - Companies can use 1. Product design 2. Rengineering 3. New delivery methods as well to keep costs down, offering kiosks and self-checkout lanes are methods to keep costs down. - Product design is important to companies that use cutting-edge technology. Technical companies such as BMW, Lexus, and Boeing use product design and reengineering to create efficient cost-effective products. 1.9 How The Global Business Environment Affects Business: Explanation & Examples Conducting business in the global market is challenging and complex; - Complexity of Global Business - Different Political Systems For example, democracies tend to follow the rule of law, which is a legal principle that states no one, including the government, is above the law. Some company confronted by trade barriers set up by countries to protect their domestic businesses from competition, may have to contend with tariffs, which are taxes imposed on imports. For example, tariffs are designed to make domestically produced toys more competitive with the toys Nancy imports. Some company face import quotas, which will restrict the number of imports that can enter the market during a specific time. War and terrorism have serious effects on business. War may close off entire markets either because of hostilities or because of embargoes where a business' government prevents it from engaging in trade with a country. - Different Economic Systems Most economies are mixed economies that have aspects of both free market and command economies. - Different Cultures A culture is the sum total of a group's values, beliefs, customs and practices. From a business standpoint, consumers from different cultures often have different preferences for goods or services. Understanding these cultural preferences will increase the chances to success in a new foreign market. - Meeting the Challenge A license gives a person the right to use intellectual property, such as the design of Nancy's toys. A strategic alliance is a business relationship between two or more businesses. A strategic alliance may be useful in markets that are hard to enter or with governments that require foreign businesses to have a local partner 1.10 What is Global Competition in Business? - Definition & Challenges What is Global Competition? Global competition is the services or products provided by competing companies that serve international customers. For one common goal, the best in their core competency. Core competency is what a company does best. Global competition has allowed companies to buy and sell their services internationally, which opens the door to increased profits and flattens the playing field in business. Gaining the Competitive Edge Successful leaders recognize the need to adapt to the ever-rapidly changing ways to do business in the global environment. These leaders seek to build competitive advantages around the core competencies of the organization, while also reducing costs to conduct their business. In order to keep the competitive position in the domestic market, they will need to acquire knowledge of other key competitors in the global marketplace. They need to stay informed of other domestic and foreign competitors' potential strategies, as well as their competitors' strengths and weaknesses. Challenges in the Global Market The result of successfully competing in a global market has its benefits, but it's not without its challenges. Companies are seeing that what works domestically, doesn't necessarily work internationally. Cultural differences play a large role in the global market, and there are a couple factors that companies must consider when competing globally. Value of Time The value of time in certain countries (i.e., Germany) is considered high and is seen as unprofessional if you are late to a scheduled appointment. Global companies understand the need to adapt to the country that they serve. Communication In some areas of the world, you must adjust the way that you address your foreign colleagues. The use of the last name and recognition of title could be the make-or-break determination of respect. Knowing the do's and don't's in business is essential to international success. The Internet and Global Competition The Internet connected computers to the Web ,they could research societies and cultures, research the innovation from the competition to attain a competitive advantage, survey the target audience to reduce R&D, and more.
