Competition

• Competition refers to the rivalry between firms in the same industry who aim to increase their market share. This usually occurs within markets where multiple sellers have the potential to meet the demand of consumers.

• According to the nature and degree of competition, markets can be segmented as perfect competition, monopolistic competition, oligopoly and monopoly.

• An understanding of how competitive situations affect strategic decision-making within organisations is essential. It often influences pricing, advertising, product development, and other key aspects of a business.

• The intensity of competition can vary depending on various factors such as market size, number of competitors, product lifespan, among others.

• Barriers to entry such as patents, high capital requirements, or an established brand identity can minimise competition in certain industries.

• Firms operating in perfectly competitive markets are price takers, meaning they have no control over the price at which they sell. On the other hand, firms in a monopoly have significant control over prices.

• Porter’s Five Forces model is a useful tool to analyse competitive forces and the overall industry structure. The five forces are the threat of new entrants, bargaining power of customers, threat of substitute products/services, bargaining power of suppliers, and rivalry among existing competitors.

• Porter’s Five Forces model can help evaluate the attractiveness and potential profitability of an industry.

• Regulatory bodies exist to ensure healthy competition and protect consumer rights. These bodies have the power to penalise companies for anti-competitive behaviour.

• Mergers and acquisitions could potentially reduce competition by reducing the number of independent companies in the market.

• The influence of competition on a business should be considered alongside other external influences such as PESTLE factors (Political, Economic, Social, Technological, Legal, Environmental). The combined effects of these factors may create a multitude of potential opportunities and threats for a firm.

• Effective competition drives innovation, improves product/service quality, leads to greater choice for consumers and generally stimulates economic growth. However, it can also result in businesses resorting to unethical practises or sacrificing long-term sustainability for short-term gains in a bid to outdo competitors.