Business Competition
Overview
Walk down any high street and you will see two very different kinds of business: a corner shop selling almost identical bread and milk to twenty rivals within walking distance, and a single national water company that every household in the region must buy from because there is no alternative supplier. Both are real market structures, and the amount of competition each firm faces changes almost everything about how it behaves.
In this lesson you will travel along the spectrum of market structures from highly competitive markets to monopoly, examine why some firms grow large while others deliberately stay small, and unpack the barriers that keep monopolies and oligopolies protected from new rivals. You will finish able to judge, for a given market, whether more competition or more concentration serves consumers better.
Objectives
- Advantages and disadvantages of competition to firms, consumers and the economy, including efficiency, choice, quality, innovation, price
- Advantages and disadvantages of large firms and small firms
- Factors influencing the growth of firms: government regulation, access to finance, economies of scale, the desire to spread risk, the desire to take over competitors
- Reasons firms stay small: size of market, nature of market (niche), lack of finance, aims of the entrepreneur
- Definition of monopoly
- Main features of monopoly: one business dominates the market, unique product, price-maker, barriers to entry (legal barriers, patents, marketing budgets, technology, high start-up costs)
- Advantages and disadvantages of monopoly: efficiency, choice, quality, innovation, price, economies of scale
- Definition of oligopoly
- Main features of oligopoly: few firms, large firms dominate, different products, barriers to entry, collusion, non-price competition, price competition
- Advantages and disadvantages of oligopoly: choice, quality, innovation, collusion and cartels fixing high prices, price wars between oligopolies
Lesson Note
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Lesson Evaluation
Congratulations on completing the lesson on Business Competition. Now that youve explored the key concepts and ideas, its time to put your knowledge to the test. This section offers a variety of practice questions designed to reinforce your understanding and help you gauge your grasp of the material.
You will encounter a mix of question types, including multiple-choice questions, short answer questions, and essay questions. Each question is thoughtfully crafted to assess different aspects of your knowledge and critical thinking skills.
Use this evaluation section as an opportunity to reinforce your understanding of the topic and to identify any areas where you may need additional study. Don't be discouraged by any challenges you encounter; instead, view them as opportunities for growth and improvement.
- Which market structure is characterised by many small firms selling an identical product, none able to influence the market price? A) Monopoly B) Oligopoly C) Perfect competition D) Natural monopoly Answer: C
- Which of the following is a barrier to entry? A) Falling consumer demand B) A patent protecting a product design C) A fall in raw material prices D) An increase in the number of suppliers Answer: B
- A market is dominated by four large firms who compete mainly through advertising and loyalty schemes rather than price. This best describes: A) Perfect competition B) Monopoly C) Oligopoly D) A niche market Answer: C
- Which of the following best explains why a monopolist can act as a price-maker? A) It has lower costs than every other firm B) Consumers have no close substitute to switch to C) It always sells at the lowest possible price D) Government sets its price directly Answer: B
- Which of the following is most likely to encourage a small firm to remain small rather than grow? A) Easy access to bank finance B) Operating in a niche market with limited total demand C) Strong economies of scale D) A government subsidy for expansion Answer: B
Available on the Green Bridge App
Download the Green Bridge CBT app on your phone or computer to access full lesson notes, practice questions, and more.
Available on the Green Bridge App
Download the Green Bridge CBT app on your phone or computer to access full lesson notes, practice questions, and more.
Recommended Books
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