External influences part 3
The competitive environment
(how competition helps both firms and consumers)
Collusion
Non-price
competition
Oligopolies
Predatory pricing
Defining what a competitive market is
• Intense rivalry between firms – either
online or physically
• The more firms = the more competitive
the mkt = greater utility for
consumers…..but not necessarily for
businesses
• Size and structure of the market very
important though e.g. market share
allocation and concentration ratios
• Competition restricts abnormal profit
being ‘kept’ by the firm and pushes
prices down
• USPs, collusion or predatory pricing can
get round this problem of intense
competition if you are a business
• Marketing and branding very important
influencer on competition
Degrees of competition……
• Some firms dominate the market –
economists call them oligopolies or
monopolistic (over 25% of market
share)
• Domination is usually bad news for
consumers as prices go up and choice
is restricted by dominating firm(s)
• CMA regulates against these potential
abuses (see law slides)
• Firms desire monopolisitic positions
as they can extract maximum profits
with minimal costs
• In truth most markets are oligopolies
• High levels of non-price competition is
the key influencer
Big market, little market……
• Most competitive markets have lots of small
firms competing on homogenous (nearidentical products)
• These products are called commodities (e.g.
coffee, petrol, milk)
• Commodity markets often have intense
rivalry as price is the overwhelmingly most
important aspect of the product selling or
not
• Product differentiation is the only way
forward for businesses in this type of market
• Some markets are too small for more than a couple of
firms to operate in
• Large firms can dominate small markets and stop new
entrants from coming into that market and competing
• These markets tend to be less contestable and there
are barriers to entry into that market even if you
wanted to join it
Typical 6 marker…..
1. Analyse two factors which
could decrease the level of
competition within the car
market (use the visual here
 to help prompt you…)
2. Consolidate. Read through
chapter 47 and write 5
questions to test your
partner
3. Slide 7 – Collusion.
Investigate and complete the
case-study table
Anti-competitive business of collusion…..it happens – Airlines and Banks
1.
2.
Click on the images and video links
and read/watch the reports
For each complete a table of
WWWW&H
Research using the links and fill in the table
BA/Virgin price fixing
UK Banks – LIBOR rigging
What happened? / How did it happen?/ When did it
happen? / Who was affected/took part? /How did it work?
What happened? / How did it happen?/ When did it
happen? / Who was affected/took part? / how did it work?
Review – what answer fits the question?
The answer….
The question……
A new company may enter the market or one might
leave easily
Why is it hard to break into small markets with strong
established brands in it?
Firms want as much control as possible over price and
although it is illegal to collude some firms may be
tempted to do this
How is it that Mars can make more money selling Dolmio
sauce than Mars bars?!
By looking at the concentration ratio (usually the topthree firms’ market share) we can see how competitive
it is
Why are so many brands that are well known owned by
big US firms?
Because there isn’t enough market size to justify the
huge costs of trying to break through exist customers’
purchasing habits
How can we measure the level of competition in a
market?
The stronger the brand the stronger the sales meaning
the greater your market share which leads to greater
revenues for that product
Why might firms say they welcome competition but don’t
really mean it?
The power of advertising and marketing was developed
in the US in the 1930s. This has led of huge oligopoly
companies controlling many individual brand names
What is a contestable market?
Deeper research – collusion new
stories
• http://www.telegraph.co.uk/finance/newsbysector/transport/92
13267/British-Airways-fined-58.5m-for-fuel-price-fixing.html
• http://news.bbc.co.uk/1/hi/business/6925397.stm
• http://www.economist.com/node/9600155
• https://www.theguardian.com/business/2010/apr/26/ba-virgincartel-price-fixing
• https://prezi.com/-4c3dljk3zoo/british-airways-and-virginatlantic-collusion/
• http://www.telegraph.co.uk/travel/news/British-Airways-pricefixing-fine-overturned/
• https://www.ft.com/content/7dfef71e-09f9-11e1-85ca00144feabdc0
• http://news.bbc.co.uk/1/hi/business/5105454.stm
One extra - humbled post 2008? (click on right image for
article)