The Operation of Markets

Key words: price and non-price competition, market share, market structure, price taker, price maker, monopoly, pure monopoly, legal monopoly, natural monopoly, oligopoly, duopoly, product differentiation, branding, cartel, collusion, barriers to entry, private costs and benefits, social costs and benefits, negative and positive externalities

Competition

The goods and services produced by business organizations to satisfy consumer wants and needs are sold in markets. The level and strength of consumer demand and producer supply in a market are known as market conditions. If the market for a particular good or service is expanding, this means that consumer demand is growing and a growing number of firms, attracted by the potential for profit, is competing to supply the market. Competition is the process of active rivalry between producers of a particular product. Competitors seek to win and retain consumer demand for their products. As a result, competition tends to force market prices down but expand the quantity traded. Sales revenues can be expected to grow if demand for the product is price elastic.

Firms will compete to supply a market to achieve a number of objectives. These are:

· To increase their customer base. Firms will compete with each other on price, product quality and through promotional strategies to increase the number of customers buying their products.

· To increase sales. Not only will firm seek to increase their customer base but they will also hope that existing customers will buy more. Cutting prices can increase sales revenues from products for which demand is price elastic. Advertising and other promotions, such as free gifts, can help to expand sales without the need for price cuts.

· To expand market share. The market share of a firm can be calculated as its proportion of total sales. The larger an organization's market share, and the more widely established its product, the better able it will be to withstand new competition from new products and firm.

· To achieve product superiority. This has two meanings. On the one hand, it refers to making a product that is clearly better than rival products for reasons of prestige and/or profit. A superior product will help a firm to achieve its objectives of generating sales and expanding market share. On the other hand, product superiority also means that the product dominates a market by outselling all others - which is not necessarily because it is the best product on the market. A firm that is able to dominate the supply of a product to the market is able to have some influence over determination of the market price. It is also well placed to fight off competition from smaller rivals.

· To enhance image. Firm will also compete on image. Customer perception of an organization will be reflected in its sales. A poor image will reduce sales; a good image will help to expand sales and market share. In response to the growing awareness of environmental issues among customers in the 1990s, many organizations are trying to present themselves as caring and environmentally friendly.

Дата добавления: 2015-12-08