COMPETITION IN A FREE
MARKET
ENT 12
FREE-MARKET SOCIETY
• Canadians live in a free-market
society.
• Free market – an economic system
that permits profit, private property
and competition
2
PROFIT
• Profit is the reward a businessperson
receives for risking time, energy, capital and
reputation
• Profits may be re-invested, used to pay off
debt, used to pay taxes, etc.
3
PRIVATE PROPERTY
• A free-market society allows Canadians to
hold private property—people can buy
things and keep them, sell them, or give
them away.
4
COMPETITION
•
•
Having a free market means that
competition is allowed and encouraged.
There are 4 major market structures:
1.
2.
3.
4.
Perfect competition
Monopolistic competition
Oligopoly
Monopoly
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PERFECT COMPETITION
• A market characterized by a large
number of small companies, none of
whom have an opportunity for market
control.
• It requires government legislation to
restrict growth in order to prevent
market dominance by any of the
competitors.
6
MONOPOLISTIC
COMPETITION
• A market consisting of a large number of
companies, each having an opportunity for a
degree of market control.
OLIGOPOLY
• A market with a small number of large
companies, each with a substantial amount
of market control.
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MONOPOLY
• A market in which a single company
has complete market control.
• The Canadian government regulates
monopolies.
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BENEFITS OF
COMPETITION
• Encourages creation of new businesses
• Wide selection of goods and services
offered to consumers
• Increase in level of service offered by
service businesses
• Better products at better prices
• New technology that improves our
standard of living
9
DIRECT COMPETITION
• Direct competition – when companies
with products that are very similar
are competing for the same market
– ie. A movie theatre with stadium seating
vs. the downtown movie theatre that
makes great popcorn
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INDIRECT COMPETITION
• Indirect competition – when companies
with products that are not similar are in
competition for a consumer’s
discretionary income
– ie. You have $20—do you spend it on pizza or
a new DVD?
OR
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COMPETITIVE
ADVANTAGES
• Businesses look for advantages over
their competition—some are
temporary (development of a flavour
of soft drink that is “copied” by a
competitor) or sustainable or long
term.
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SUSTAINABLE COMPETITIVE
ADVANTAGES
• Methods by which a business holds on
to its customers in spite of the
competition by:
Developing a unique selling proposition
Lowering production costs
Serving a niche market
Creating customer loyalty
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UNIQUE SELLING
PROPOSITION
• Why would a target customer buy
from me instead of from my
competitor?
“I advertise more.”
“I make that product in green.”
“I deliver.”
“This is a patented design.”
14
LOWERING PRODUCTION
COSTS
• Using cost-efficient, high-tech systems
to reduce costs
• Building a plant in a country with lower
taxes or labour expenses
15
SERVING A NICHE MARKET
• Providing a product or service for a small
market and keeping competitors out of
that market
– ie. Software packages for specific needs
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CREATING CUSTOMER
LOYALTY
• The customer develops a strong
relationship with the product or
retailer and will not consider another
unless the retailer makes a big
mistake.
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NON-SUSTAINABLE
COMPETITIVE ADVANTAGES
• Those which can be used by
competitors to shift sales in their
direction. They include:
Promotion
Placement
Quality
Benefits of use
Price
Design features
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PROMOTION
• Achieving top-of-the-mind awareness for a
brand (ie. “Roll up the rim to win” by Tim
Hortons)
PLACEMENT
• To compete, a product must have a
placement in the market—it must be there.
– ie. Seaman’s beverages (PEI) in Vancouver
– ie. Bottled water at a fitness centre
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QUALITY
• Businesses try to make their
products stronger, faster, lighter,
easier to open, add features to
improve the product, etc.
BENEFITS OF USE
• The value is not in the product itself
so much as in what that product will
do for the person who buys it.
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PRICE
• All features being equal, price is only
a competitive advantage if its product
or service is less expensive than the
competitor’s.
DESIGN FEATURES
• Consumers will buy one product rather than
another because they like the style, the
way it looks, or the way the product makes
the consumer look.
• Package design also competes for
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customer’s attention.