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Competitive Advantage and Developing a Competitive Advantage Over Rivals

Satisfactory Essays
Competitive Advantage and Developing a Competitive Advantage Over Rivals

Different Market Structures

There are 3 types of markets, one is Perfect Competition, another is

Monopoly and lastly there is Oligopoly.

Perfect Competition

A definition of Perfect Competition is 'it exists when there are so

many people in the market, and other conditions are such, that noone

can influence the price, all other things being equal.'

(BPP Business Organisations, Competition and Environment Chapter 4

Page 105)

Perfect competition is very rare and it is so competitive that any

individual buyer or seller has only a slight impact on the market

price. Products are all the same and information is perfect. The

products or services sold are exactly the same, which is known as

'homogeneous' which are all the same price. Firms earn only normal

profit (the bare minimum profit necessary to keep them in business).

If firms started to earn more than that the absence of barriers to

entry means that other firms will enter the market and drive the price

level down until there are only normal profits to be made. Even the

technology used is the same throughout all the companies.

www.economist.com

www.oligopolywatch.com

Monopoly

A definition of Monopoly is 'it exists when there is only one supplier

of a product or service.'

(BPP Business Organisations, Competition and Environment Chapter 4

Page 106)

Monopoly is a sole player and the Government defines a Monopoly as a

business with at least 25% of the market share. A single Monopoly

however is just one company which has 100% of the market share. A

monopoly will produce less, at a higher price. It decides its price by

calculating the quantity of output at which its marginal revenue would

equal its marginal cost, and then sets whatever price would enable it

to sell exactly that quantity.

In practice, few monopolies are absolute, and their power to set

prices or limit supply is constrained by some actual or potential

near-competitors. An extreme case of this occurs when a single firm
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