Competitive Environment Lecture

Definition of Competition

Competition occurs when a business operates in a market (local, national, or global) alongside other businesses offering similar goods or services.
These competing businesses are referred to as rivals.

Price: Rivals may offer lower prices, but this can lead to higher costs for them.
Product Quality: Rivals might have higher quality products, again leading to higher costs.
Location: Better locations might attract more customers but incur higher costs.
Product Range: A wider range of products can mean less ability to exploit economies of scale and higher storage costs.
Customer Service: Better customer service may result from higher training costs.

Price Reduction: To stay competitive, businesses might lower prices, reducing revenue.
Increased Marketing: More marketing efforts might be required to retain customers, leading to higher costs.
Quality Improvement: Improving goods/services quality to stay competitive, which may lead to higher production costs.
Customer Service: Enhancing customer service to differentiate from competitors, resulting in higher training costs.

Sales and Prices: Fewer options for customers might mean businesses don’t need as high sales volume and can raise prices.
Higher Profits: Increased prices can lead to higher profits.
Investment: Higher profits can lead to more investment in the business or higher dividends for shareholders (in the case of public limited companies).

Investment in Capital: New machinery and technology can lead to improved production processes.
Technical Economies of Scale: Investment in production can reduce average costs per unit.

Complacency: Businesses might become lazy and invest less due to lack of competition.
Barriers to Entry: Reduced investment may lower barriers to entry, allowing new rivals to enter the market and steal market share.