Competitive Markets Notes
Competitive Markets
Market for Currency
- Foreign currency can be obtained from various outlets like banks, post offices, and online.
- Prices charged by suppliers are similar.
Competition and Firms
- Firms generally dislike competition, preferring market dominance for higher prices and less pressure to be efficient.
- Competition forces firms to offer value for money by:
- Operating efficiently to minimize costs.
- Providing good quality products and customer service.
- Charging acceptable prices.
- Innovating and improving products.
- Product differentiation: Firms attempt to distinguish their products from competitors.
Advantages & Disadvantages of Competition
- Advantages:
- Efficiency.
- Choice.
- Quality.
- Disadvantages: Deregulation can increase competition.
What is a Competitive Market?
- Competition is rivalry between firms selling goods/services in a market.
- Characteristics of a Competitive Market:
- Large number of buyers and sellers.
- Products are close substitutes.
- Low barriers to entry.
- Firms have little control over prices.
- Free flow of information about products and prices.
Disadvantages to Firms in Competitive Markets
- Limited profit due to lower prices and shared profits among many firms.
Competition and the Consumer
- Advantages of competition for consumers:
- Lower prices due to market substitutes.
- More choice as firms differentiate and new entrants appear.
- Better quality as firms strive to offer value for money.
- Disadvantages of competition for consumers:
- Market uncertainty due to firms leaving the market.
- Potentially less innovation as firms have less profit for investment.
Competition and the Economy
- Advantages of competitive markets:
- More effective resource allocation as firms operate efficiently.
- Increased innovation, leading to new products and technologies.
- Disadvantages of highly competitive market:
- Resources might be wasted because factors of production are often immobile.