Economics: Types of Competition
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Questions and Answers

What is the purpose of analysing key competitors?

  • To develop a marketing strategy
  • To understand market size, growth, and profitability
  • To identify new business opportunities
  • To evaluate the strengths and weaknesses of competitors (correct)
  • Which of the following is an example of an organisation with low and easily surmountable barriers?

  • A small startup with limited resources
  • Microsoft with necessary technology (correct)
  • A company with high operational costs
  • A local retailer without a strong brand
  • According to the ADL model, what is the characteristic of a dominant competitive position?

  • Exploitable strengths and better opportunities
  • Strong and protected technological leadership or monopoly (correct)
  • Strong access to resources and capabilities
  • Vulnerable performance with satisfactory results
  • Which of the following is an example of a company in a strong competitive position?

    <p>Volkswagen in the motor vehicles industry</p> Signup and view all the answers

    What is the main reason organisations need to differentiate themselves from competitors?

    <p>Because consumers are well-informed of the choices they have</p> Signup and view all the answers

    What is the main purpose of Porter's Five Forces model?

    <p>To analyse the competitive structure of an industry</p> Signup and view all the answers

    What is the purpose of evaluating competitors' strengths and weaknesses?

    <p>To understand the competitive landscape</p> Signup and view all the answers

    According to the ADL model, what is the characteristic of a weak competitive position?

    <p>Unsatisfactory performance, inefficient and ineffective</p> Signup and view all the answers

    What is one of the factors that determines the threat of new entrants?

    <p>The reaction of existing competitors</p> Signup and view all the answers

    What is an example of a source of barriers to entry?

    <p>Supply-side economies of scale</p> Signup and view all the answers

    What does the bargaining power of customers depend on?

    <p>The number of alternative choices customers have</p> Signup and view all the answers

    What is an example of a type of economic competition?

    <p>Monopolistic competition</p> Signup and view all the answers

    What does the threat of substitute products depend on?

    <p>The availability of alternative products</p> Signup and view all the answers

    What is the main purpose of identifying the competitive structure of an industry?

    <p>To understand the competitive dynamics of the industry</p> Signup and view all the answers

    Study Notes

    The Competitive Arena

    • Organisations need to differentiate themselves from competitors in the market due to well-informed consumers and intense rivalry from new entrants.

    Industry Structure

    • Industry structure refers to the number and size of competitors in an industry.
    • Michael Porter's five forces model explains competition in an industry, which includes:
      • The threat of new entrants
      • The bargaining power of suppliers
      • The bargaining power of customers
      • The threat of substitute products
      • Rivalry among existing competitors

    Porter's Five Forces Model

    • The threat of new entrants depends on:
      • Prevailing barriers to entry (low or high)
      • Reaction of existing competitors that entrants can expect (low or high barriers)
    • Sources of barriers to entry:
      • Supply-side economies of scale
      • Demand-side economies of scale
      • Customer switching costs
      • Capital requirements
      • Incumbency advantages
      • Unequal access to distribution channels
      • Restrictive government policy
    • The bargaining power of suppliers is influenced by the number of suppliers in the industry.
    • The bargaining power of customers is influenced by the availability of alternative choices.
    • The threat of substitute products is influenced by the number of competing businesses that offer substitute products.
    • Rivalry among existing competitors is influenced by the intensity of competition in the industry.

    Analysing Key Competitors

    • Understanding current competitors involves analysing market size, growth, and profitability, as well as their strengths and weaknesses.
    • Understanding potential competitors involves identifying organizations with low barriers to entry, such as those with necessary technology, market access, strong brand, or operating knowledge and skills.

    Competitive Positions

    • According to the Arthur D. Little (ADL) model, organisations can occupy one of the five competitive positions:
      • Dominant: Strong technological leadership or monopoly
      • Strong: Sufficient access to resources and capabilities
      • Favourable: Exploitable strengths and better opportunities
      • Tenable: Vulnerable, performing just satisfactorily
      • Weak: Unsatisfactory performance, inefficient, and ineffective

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    Description

    Understand the different types of economic competition, including monopoly, monopolistic competition, oligopoly, and pure competition. Learn how organisations differentiate themselves in a competitive market.

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