Business analysis

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Market analysis

What is a market structure?

Refers to the characteristics of a market (number of firms, barriers to entry and competition)

List the 4 main categories of market structure

  • Perfect competition- may firms produce identical produtcs
  • Monopolistic competiton- many firms product slightly differentitated products
  • Oligopoly- a few large firms dominate the market
  • (pure) Monopoly- a single firm supplies the whole market

Why are some markets competitive?

Markets are competitive when firms are free to enter or leave an industry (no barriers)

What are barriers to entry?

Obstacles that restrict firms breaking into a market and competing with established firms

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Market analysis

Describe 4 types of barrier to entry

  • Law: legal barriers including patents/copyright 
  • Access barriers: access to suppliers or distributors
  • High entry costs: setting up costs, hiring staff, equipment an advertising
  • New firms: low sales- higher units costs

Explain barriers to exit

The costs incurred in leaving an industry are called sunk costs e.g marketing costs. Large sunk costs are a barrier to exit and increase the risk of a new venture

3 advantages to increased competition for consumers

  • More choice- more substitutes
  • Lower prices
  • Improved products
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Market analysis

4 impacts of increased competition on producers

  • Maintain low prices and offer best value for money
  • invest in research and development
  • Lower profit margins 
  • Make best use of resources

List 5 ways to assess the competitiveness of an industry

  • Threat of entry by new competitors 
  • Threat of substitutes
  • Bargaining power of buyers
  • Bargaining power of suppliers
  • Degree of rivalry between existing competitors
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