Relationship between Business + the Competitive Environment

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Degree of competition

Monopoly - one firm dominates market

Duopoly - two firms dominate market

Oligopoly - small number of firms dominate market

Monopolistic - many firms compete selling diffrentiated products (packing & marketing)

Perfect - many firms with no influence on market price 

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Competition Committee

Gov't aims to increase competition: Firms more efficient -> benefits consumers 

Competition Committee gov't body in charge of ensuring healthy competition


  • Mergers/Takeovers - Kraft + Cadbury
  • Markets lacking competition 
  • Regulated markets - water/electricity

Investigate anti-competitive behaviour - formation of cartels (businesses come together + set prices = unfair & illegal) --> reduce choice & increase prices 

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The Office of Fair Trade + Competition

  • Impose fines of firms found guilty of fixing prices (10% revenue)
  • Refuse permission for mergers not in interest of public
  • Release info a/b price fixing to media
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New competitors

New firm entering industry poses threat to all existing businesses in market

Static market - new firm will look to gain market share - have to come from other firms

New entrant = large firm --> significant threat on existing businesses

Google vs. Microsoft 

Nokia vs. Apple

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Dominant Businesses

Have some form of monopoly in their markets


- Reduce choice

- Increase prices

- Be inefficient w/o competition 

- Create barriers to entry to stop new firms from entering market

H/e can also:

+ Invest heavily in new technology

+ Gain economies of scale (+ production, - costs)

Firms can become dominant by internal growth (opening new stores) or external growth (takeovers/mergers)

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Changes in buying power of customers

Large firms supply to other firms + consumers 

But also are major customers to suppliers 

Unusual to find monopsony (single buyer) in market but often large firms in dominant position when buying from suppliers

Growth = more bargaining power 

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Changes in selling power of suppliers

Some suppliers have little to no competition

Makes them powerful 

OPEC - Organisation of Petroleum Exploring Countries example of org that controls supply - petrol.

Controlled by KSA, restrict supply to keep oil prices high.

British Gas + Microsoft faced outcry from public over anti-competitive practices due to lack of competition amongst suppliers

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Porter's Three Competitive Strategies

Cost Leadership, Diffrentiation, Focus.

Tight costs control achieved by pressure on suppliers

Low cost distribution 

Incentives based on meeting strict cost-based targets


May not prevent new entrants as they benefit from imitation

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Differentiation from Rivals

Focus on product engineering (ensure highest quality)

Build reputation for quality + innovation

Invest in R&D

Attract skilled labour 


- Low cost may outweigh brand loyalty

- Products likely to be income-elastic (responsive to income --> recession)

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Focus - combination of both but focus on niche mar

E.g. - First choice spealist holidays 

Using steps from previous strategies to focus on niche markets.


  • Existing niche market suppliers may already have brand loyalty
  • Niche markets have fewer economies of scale = additional costs.
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