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Understanding competitive rivalry - Coggle Diagram
Understanding competitive rivalry
An industry is characteristed by what the organisations within the industry do, what proctors they produce or what services they provide within an industry which is generally the same
We analyse the competitive environment to determine the extent of rivalry and potential for opportunity and profit
A market is a group of customers who share the same wants, needs and characteristics
There are several aspects of the competitive environment that organisations find useful to analyse, eg it is useful to know how competitive an industry is, how many competitors there are and how attractive it is
Competition spectrum and extent of rivalry
Monoply
Associated with a lack of competition
Where the industry is dominated by one firm
Organisations which operate as a monopoly tend to be powerful in the market and can gain economies of scale and dictate prices should they desire
Oligopolies
Markets with only a small number of compeittiors
When operating in this type of market an organisation has to consider how its actions will affect the decisions of its rivals as they are interdpendent
This is particularly important with regard to pricing decisions
Organisations operating in such markets tend not to compete on price, favouring differentiation strategies
Monopolisitic
Where there are many rivals for the same customers but each one sells a slightly differentiated product such as restaurants, hotels or high street clothing chains
These markets tend to have easy entry and exit to the market
A perfectly competitive market structure has many sellers of the same product and buyers and sellers have perfect knowledge of market conditions, eg local farmers market where the fruits and veg are the same and sellers and buyers can readily see the prices being charged at each stall
The competitive structure of an industry relates to the degree of competition firms face in that industry
Many countries regulate their markets to ensure they are working in the best interests of consumers and the country - typically own lawing cartels, banning anti-competitive practices such as price fixing and preventing organisations from abusing a dominant marketing position
For customers, greater rivalry is seen as a benefit, driving down prices
Many regulators seek to promote low concentration ratios
Market concentration measures the ratio between total sales in an industry against the number of organisations competing in that market
A high concentration ratio implies a relatively small number of firms account for a majority of the total sales in the industry
There are many factors influencing the level of competition such as the attractiveness of the market, demand, the nature of the product or service, the number and concentration of firms in the market, market entry coditions, government intervention and so on