Competition - these are the other businesses that sell the same good as a business in their market.
Effect of Competition:
- Employees - pressure to keep costs down to be competitive might negatively impact working conditions
- Suppliers - may be bullied into a bad deal by a business because of pressure to keep costs down
- Shareholders - dividends might be low because of pressure to reduce spending
How competitive a market is influenced by:
- Profitability of a product
- Barriers to entry
- Barriers to exit
Barriers to entry - the factors that could prevent a business from entering and competing in a market
Examples:
- Large start-up costs
- Having to match expensive marketing budgets of existing businesses
- Legal restrictions
- Inability to gain economies of scale
- Possibility of price war being triggered by existing companies
Barriers to exit - the factors that could prevent a business from leaving a market, even if it would like to
Examples:
- Difficulty of selling off expensive machinery
- Hugh redundancy costs
- Contract with suppliers