The Original Five Factor:Threat of New Entrants - The easier it is for new companies to enter the industry, the more cut-throat competition there will be. Factors that can limit the threat of new entrants are known as barriers to entry. Some examples include:Existing loyalty to major brandsIncentives for using a particular buyer (such as frequent shopper programs)High fixed costsScarcity of resourcesGovernment restrictions or legislationEntry protection (patents, rights, etc.)Economies of product differencesBrand equitySwitching costs or sunk costsCapital requirementsAccess to distributionAbsolute cost advantagesLearning curve advantagesExpected retaliation by incumbents
Competition in the real world<br />Presented by:<br />65- Mukul<br />75- PrashantVerma<br />85- SalmanAzizi<br />95- ShakeelSiddique<br />105- Tahaa Lokhandwala<br />115- Yusuf<br />
Competition in economics is a term that encompasses the notion of individuals and firms striving for a greater share of a market to sell or buy goods and services<br />What is competition ?<br />
Types of competition<br /> Monopoly - A situation in which a single company owns all or nearly all of the market for a given type of product or services<br />Oligopoly - An oligopoly is a market form in which a market or industry is dominated by a small number of sellers<br />Perfect Competition - In economic theory, perfect competition describes markets such that no participants are large enough to have the market power or price of a homogeneous product<br />
Leading authority on company strategy and the competitiveness<br />Developed a 5 force model for industry analysis & business strategy<br />It focuses on the forces close to the co. that hampers its customer service & profit<br />Michael Porter<br />
Threat of New Entrants <br />Existing loyalty to major brands<br />Incentives for using a particular buyer<br />High fixed costs<br />Scarcity of resources<br />Brand equity<br />Capital requirements<br />
Power of Suppliers<br />There are very few suppliers of a particular product<br />There are no substitutes<br />The product is extremely important to the buyer, they cannot do without it<br />The supplying industry has a higher profitability than the buying industry<br />Threat of forward integration by suppliers relative to the threat of backward integration by firms<br />
Small number of buyers<br />Purchases of large volumes<br />Switching to another (competitive) product is simple<br />The product is not extremely important to the buyer, they can do without it for a period of time.<br />Customers are price sensitive<br />Power of Buyers/ Customers<br />
Buyer propensity to substitute<br />Relative price performance of substitutes<br />Buyer switching costs<br />Perceived level of product differentiation<br />Fad and fashion<br />Technology change and product innovation<br />Availability of Substitutes<br />
PURE AND PERFECT COMPITITION<br /><ul><li>SALIENT FEATURES
Large numbers of undifferentiated buyers and sellers.
Each competitor offers or seeks exactly a similar things as do </li></ul> the others.<br /><ul><li>Commodity bought and sold is well organized.
There are many competitors acting independently.
Market price must be flexible over a period of time.
No obstacle to the entry or withdrawal of the firms.
No patents ,proprietary designs or special skills. </li></li></ul><li>GOVERNMENT INTERVENTION IN PRICE FIXING<br />Attempts to fix prices above an equilibrium level<br /><ul><li>Minimum wage legislation and price support policies.</li></ul>Set maximum prices below equilibrium level.<br />
EFFECTS OF TIME UPON SUPPLY<br /><ul><li>Important to discuss supply change overtime.
Long period</li></li></ul><li>THE FIRM IN PURE COMPETITION<br /><ul><li>Firm has to production and sales policies to the given market price.
In pure competition marginal revenue = average revenue.
Greater the quantity sold greater the revenue .</li></li></ul><li>THE FIRM AND SHUTDOWN POINT<br /><ul><li>At any price lower than the lowest variable cost per unit , the firm will have to shut down
Decision to operate at loss or shut down and why should continue in losses?
Price = average variable cost - just recovery of total variable cost</li></ul> shut down<br /><ul><li>Price < average variable - fail to recover its variable cost – </li></ul> shut down<br />
CONSEQUENCES OF PURE COMPETITION<br />Market price is less than cost of production of a particular producer, he can do nothing but to take a loss.<br /> if the price remains below his cost of production for a sufficiently long period, he has no alternative but to go out of business.<br />2. Increases profit by selling more units.<br />3. Products subject to competitive market situation face a greater of price instability than is the case with differentiated products.<br />4. No useful purpose is served by advertising.<br />
The word monopoly is derived from the Greek word MONOS POLIAN<br />He is a single seller in the market who has complete control over the entire market supply<br />There are no close substitute for the product<br />There are entry barrier<br />This sole seller in the market is called the monopolist<br />What is Monopoly<br />
Monopolist is the single producer in the market<br />There are no closely competitive substitute<br />There is complete absence of competition<br />A monopolist is a price maker and not a price taker<br />Monopoly firm itself being an industry faces downward sloping demand curve<br />A pure monopolist has no immediate rival<br />Feature of Monopoly firms<br />
Monopolist exercises the market power by restricting supplies<br />Consumers choice is restricted<br />Absence of efficiency<br />Disadvantages Of Monopoly<br />
Large financial resources<br />Savings in expenditure<br />Monopoly is essential in public utility sector<br />Advantages Of Monopoly<br />
INDIAN RAILWAYS<br />BEST BUS SERVICE IN MUMBAI<br />Example Of Monopoly<br />
What is Monopolistic Competition?<br />Monopolistic competition is a market structure in which:<br />There are a large number of firms<br />The products produced by the different firms are differentiated<br />Entry and exit occur easily<br />Entering firms/competitors produce close substitutes<br />Monopolistic Competition<br />
The four distinguishing characteristics of monopolistic competition are:<br />Many sellers.<br />Differentiated products.<br />Multiple dimensions of competition.<br />Easy entry of new firms in the long run.<br />Characteristics<br />
When there are many sellers, they do not take into account rivals’ reactions.<br />Modest changes in the output or price of any single firm will have no perceptible influence on the sales of any other firm.<br />The relative independence of monopolist competitors means that they don’t have to worry about retaliatory responses to every price or output change.<br />Many Sellers<br />
Product differentiation gives monopolistic competition its monopolistic aspect.<br />Differentiation exists so long as advertising convinces buyers that it exists.<br />Each firm has a distinct identity – a brand image.<br />Consumers perceive its output to be somewhat different than others in the industry.<br />monopolistic competitors establish brand loyalty.<br />Differentiated Products<br />
gives producers greater control over the price of their products.<br />makes the demand curve facing the firm less price-elastic.<br />implies that consumers shun substitute goods even when they are cheaper.<br />Brand loyalty.<br />
One dimension of competition is product differentiation.<br />Another is competing on perceived quality.<br />Competitive advertising is another.<br />Others include service and distribution outlets.<br />Multiple Dimensions of Competition<br />
There are no significant barriers to entry.<br />Barriers to entry prevent competitive pressures.<br />Ease of entry limits long-run profit.<br />Easy Entry<br />
What is Oligopoly??<br /><ul><li>It is market dominated by small number of sellers (oligopolist)
Each oligopolist is aware of the actions of others
The decision of one firm is influenced by the other </li></ul>OLIGOPOLY<br />
Jagdish Seth & RajendraSisodia<br />The magic number 3<br />70-90% of market share<br />Rule of 3<br />
CHARACTERISTICS/ BEHAVIOUR<br /><ul><li>Small number of large firms
The remaining firms charge the same price as the leader.</li></li></ul><li>Price Leadership can arise due to following <br />circumstances:<br />1.Lower Cost and Enough Financial Resources<br />2.Substantial Share Of the Market<br />3. Initiative <br />4. Aggressive Pricing<br />