AP Business / Personal Finance - Project 1, Task 2 Vocabulary

Competitive Advantage

The ability to outperform rivalks in the same market, leading to increased market share and potentially increased profits

Markets vary in competitiveness based on:

1. Number of rival businesses and product offerings

2. Differentated Products - creating products with distinguishing features.

3. The extent to which rivals offer similar products at a lower price.

Businesses may attempt to demonstrate their product’s superiority through:

1. Higher quality products

2. Unique product features

3. Better customer service

4. Lower prices

5. More effective marketing

Limit Pricing

Exisiting firms often set their prices just below the point that would make it profitable for a new rival to enter. They sacrifice a bit of profit now to maintain their monopoly in the long run.

Cash Reserves

Established firms often have massive reserves to absorb temporary losses. Startups have very limited cash flow.

Economies of Scale

Large established firms spread high production costs over more units, making their per-unit cost much lower than a startup.