Competition

AuthorMarcy Satterwhite
Pages129-131

Page 129

Competition is the battle between businesses to win consumer acceptance and loyalty. The free-enterprise system ensures that businesses make decisions about what to produce, how to produce it, and what price to charge for the product or service. Competition is a basic premise of the free-enterprise system because it is believed that having more than one business competing for the same consumers will cause the products and/or services to be provided at a better quality and a lower cost than if there were no competitors. In other words, competition should provide the consumers with the best value for their hard-earned dollar.

ASPECTS OF COMPETITION

To be successful in today's very competitive business world, it is important for businesses to be aware of what their competitors are doing and to find a way to compete by matching or improving on the competitors' product or service. For example, if Pepsi-Cola offers a new caffeine-free soda, Coca-Cola may offer a new caffeine-free soda with only one calorie. By offering an improvement on the competitor's product, Coca-Cola is trying to convince soft-drink consumers to buy the new Coke product because it is an improvement on Pepsi's product.

While being aware of the competition and making a countermove is important, it is also very important to pay attention to changing consumer wants, needs, and values and to make the needed changes before the competition does. Doing research and development and being the first to provide a new product or service can give a company a competitive advantage in the marketplace. Once consumers purchase a product or service and are satisfied with it, they will typically purchase the same product again. Having a competitive advantage means that a company does something better than the competition. Having a competitive advantage might mean inventing a new product; providing the best quality, the lowest prices, or the best customer service; or having cutting-edge technology.

Neighboring gas stations compete for customers in Jersey City, New Jersey, May 20, 2004. CHRIS HONDROS/GETTY IMAFGES


Page 130

Table 1

Types of competition

Types of competition
Characteristics Perfect Competition Monopolistic Competition Oligopoly Monopoly
Number of competitors Many Few to many Very few No direct competition
Ease of entry into or exit from industry Easy Somewhat difficult Difficult Regulated by U.S. government
Similarity of goods/services offered by competing firms Same Seemingly different but may be quite similar Similar or different No directly competing products
Individual firm's control over price None (set by the market) Some Some Considerable (in true monopoly) Little (in regulated one)
Examples Farmer Fast-food restaurant Automotive manufacturer Power company


To determine an area where a company might have a competitive advantage, a SWOT...

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