Business Studies - External Influences - Markets And Competi

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Business Angela Emma Rudd BMA
External Influences
Markets and Competition
Introduction to Markets
There are many outside influences which affect businesses, of which the market is
just one.
Size of the Market
The markets in which they trade heavily influence businesses. The size of the market
influences businesses: whether it is local, national or international will affect the
nature of the product they supply, as well as the number of units.
Degree of Competition
Markets also vary in terms of the degree of competition. It is true to say that
improved communications and methods of transportation have made markets more
Markets are simply places where buyers and sellers come together prices are set
and products traded.
Classifying Markets
Markets can be classified according to the number of firms trading and the degree of
competition. This type of categorisation allows the likely effects on the business to
be identified and analysed. Three main categories exists:
1. Perfect competition
2. Oligopoly
3. Monopoly
Perfect Competition
Perfect competition markets have many small firms producing virtually identical
products at very similar prices. Firms can either enter or leave such markets freely.
Firms operating in such markets do not earn excessive profits and use resources with
great efficiency.
This is when a few large firms exist and are independent in their actions. Oligopolistic
firms consider the likely reactions of competitors when considering changing process
or introducing new products.
Operating in an oligopoly market has a number of consequences for a business:
Such markets appear to be highly competitive and this is often (but not always)
Oligopolists fear price wars and tend to avoid price competition.
Nonprice competition is frequently used, for example heavy advertising, loyalty
cards and special offers.
Some oligopoly markets have a high level of take over activity as firms seek to
increase their scale and influence.

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Business Angela Emma Rudd BMA
There is risk of firms working together in Oligopoly markets ­ this is termed collusion.
Collusion may result in producers agreeing price levels and perhaps output levels. If
they have formal arrangements about prices and market share then they are
operating a cartel. (A cartel is when a group of producers collude to set prices and
sometimes to share markets) Cartels are illegal in most countries.
A monopoly exists when only a single producer operates within a market e.g.…read more

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Business Angela Emma Rudd BMA
A common unfair competition is the creation of cartel. Cartels normally result in
higher prices and less advanced products for consumers as producers share out the
market between themselves. This is more likely to occur in Oligopoly markets as the
smaller number of producers makes agreement easier to reach. Some collusion in
oligopoly markets may be tacit. This is, firm's competing in the market maintain prices
at some level without formal agreement, but it is beneficial to all those concerned.…read more


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