Types of Competition
A clear understanding of your competition is key to the success of any business. Even if your product or service fills a unique gap in the market there are always other companies offering something similar, or there are other ways to satisfy the same customer’s need. The key when thinking about your competition is to learn what makes the customer choose one product or service over another. The different options that customers consider are usually
competitors.
Competition can be either direct (competing by selling the same products) or indirect (competing for the same market). The intensity of that competition, whether direct or indirect, will affect the overall potential for success of
your business. That is why it's important to consider all types of competition when planning your business, to ensure that you have the edge over others in your industry.
Direct Competition
Multiple businesses offering similar products and services create direct competition. Burger King and McDonald's are direct competitors. So are the grocery store bakery and the patisserie on the same street, or the independent
plumber and the local Mr Rooter franchise.
Customers will likely consider a variety of price points, locations, service levels, and product features when deciding where to buy something. However, not all customers will choose the same combination of those options,
and that is essentially why competition exists. By positioning your business to offer a unique mix of options you will be able to reach a different type of consumer. Competing businesses that target wealthy consumers, for example, are not likely to compete on price, whereas competitors for working-class customers may try to offer the same product as their competitors, but at the lowest possible price. Understanding where your competitors are positioned is key to identifying the gaps that your business can fill.
Indirect Competition
Indirect competitors are businesses that offer slightly different products and services, but target the same group of customers with the goal of satisfying the same need. These are sometimes also known as substitutes.
For example, hunger creates a need to consume food. A customer may choose a local burger joint, grab some take-out sushi, or pick up a frozen pizza from the grocery store and take it home to cook. All three of these products are very different from each other, but they compete indirectly because they all satisfy hunger.
Almost all businesses face some sort of indirect competition. Service providers, such as web designers, face indirect competition from do-it-yourself services such as Wordpress, and even from pre-formatted web templates that can be purchased and downloaded. All of these services satisfy a customer's need to have a web site. By considering all the possible ways your customers' needs can be satisfied, and creating a strategy for handling that competition, you will create a powerful advantage over other business owners who believe they are unique and have no indirect competitors.
Source: http://www.smallbusinessbc.ca/starting-a-business/understanding-your-competition
A clear understanding of your competition is key to the success of any business. Even if your product or service fills a unique gap in the market there are always other companies offering something similar, or there are other ways to satisfy the same customer’s need. The key when thinking about your competition is to learn what makes the customer choose one product or service over another. The different options that customers consider are usually
competitors.
Competition can be either direct (competing by selling the same products) or indirect (competing for the same market). The intensity of that competition, whether direct or indirect, will affect the overall potential for success of
your business. That is why it's important to consider all types of competition when planning your business, to ensure that you have the edge over others in your industry.
Direct Competition
Multiple businesses offering similar products and services create direct competition. Burger King and McDonald's are direct competitors. So are the grocery store bakery and the patisserie on the same street, or the independent
plumber and the local Mr Rooter franchise.
Customers will likely consider a variety of price points, locations, service levels, and product features when deciding where to buy something. However, not all customers will choose the same combination of those options,
and that is essentially why competition exists. By positioning your business to offer a unique mix of options you will be able to reach a different type of consumer. Competing businesses that target wealthy consumers, for example, are not likely to compete on price, whereas competitors for working-class customers may try to offer the same product as their competitors, but at the lowest possible price. Understanding where your competitors are positioned is key to identifying the gaps that your business can fill.
Indirect Competition
Indirect competitors are businesses that offer slightly different products and services, but target the same group of customers with the goal of satisfying the same need. These are sometimes also known as substitutes.
For example, hunger creates a need to consume food. A customer may choose a local burger joint, grab some take-out sushi, or pick up a frozen pizza from the grocery store and take it home to cook. All three of these products are very different from each other, but they compete indirectly because they all satisfy hunger.
Almost all businesses face some sort of indirect competition. Service providers, such as web designers, face indirect competition from do-it-yourself services such as Wordpress, and even from pre-formatted web templates that can be purchased and downloaded. All of these services satisfy a customer's need to have a web site. By considering all the possible ways your customers' needs can be satisfied, and creating a strategy for handling that competition, you will create a powerful advantage over other business owners who believe they are unique and have no indirect competitors.
Source: http://www.smallbusinessbc.ca/starting-a-business/understanding-your-competition
Market Structures
Market Structures
Monopoly
A monopoly is the exclusive possession or control of the supply or trade in a commodity or service.
Four Legal Monopolies
1. Natural
2. Geographic
3. Technological
4. Government
Oligopoly
A situation in which a particular market is controlled by a small group of firms. An oligopoly is much like a monopoly, in which only one company exerts control over most of a market. In an oligopoly, there are at least two firms controlling the market.
Monopolistic Competition
This competitive structure is used among sellers whose products are similar but not identical and that takes the form of product differentiation and advertising.
Perfect Competition
A perfectly competitive market is a hypothetical market where competition is at its greatest possible level.
Monopoly
A monopoly is the exclusive possession or control of the supply or trade in a commodity or service.
- Single Seller
- No Substitute Available
- No entry
- Complete Control of Price
Four Legal Monopolies
1. Natural
2. Geographic
3. Technological
4. Government
Oligopoly
A situation in which a particular market is controlled by a small group of firms. An oligopoly is much like a monopoly, in which only one company exerts control over most of a market. In an oligopoly, there are at least two firms controlling the market.
- Domination by a Few Sellers
- Barriers to Enter
- Identical or Slightly Different Products
- Nonprice Competition
- Limited Control Over Price
Monopolistic Competition
This competitive structure is used among sellers whose products are similar but not identical and that takes the form of product differentiation and advertising.
- Numerous Sellers
- Easy Entry
- Differentiated Products
- Nonprice Competition
Perfect Competition
A perfectly competitive market is a hypothetical market where competition is at its greatest possible level.
- There are no barriers to entry into or exit out of the market.
- Firms produce homogeneous, identical, units of output that are not branded.
- Each unit of input, such as units of labor, are also homogeneous.
- No single firm can influence the market price, or market conditions.
- The single firm is said to be a price taker, taking its price from the whole industry.
- There are a very large numbers of firms in the market.
- There is no need for government regulation, except to make markets more competitive
Government Policies Toward Competition
Sherman Act
Approved July 2, 1890, The Sherman Anti-Trust Act was the first Federal act that outlawed monopolistic business practices.
Clayton Act
The Clayton Antitrust Act provides barriers to a broad range of anti-competitiveness issues. For example, topics such as price discrimination, price fixing and unfair business practices are addressed in the Act.
Federal Trade Commission Act
The Federal Trade Commission deals with complaints that are filed regarding unfair business practices such as scams, deceptive advertising and monopolistic practices. It reviews these complaints to determine if businesses are in fact engaging in harmful practices. The FTC is also responsible for reviewing mergers in the market to ensure that they do not hurt competition in the market and potentially harm consumers. Generally speaking, the FTC does not have the ability to directly enforce its rulings, but it can go to the courts to have them enforced.
Robinson-Patman Act
A federal law passed in 1936 to outlaw price discrimination. The Robinson-Patman Act is an amendment to the 1914 Clayton Antitrust Act and is supposed to prevent "unfair" competition. The act requires a business to sell its products at the same price regardless of who the buyer is and was intended to prevent large-volume buyers from gaining an advantage over small-volume buyers. The act only applies to sales of tangible goods that are completed within a reasonably close timeframe and where the goods sold are similar in quality. The act does not apply to the provision of services such as cell phone service, cable TV and real estate leases.
Sherman Act
Approved July 2, 1890, The Sherman Anti-Trust Act was the first Federal act that outlawed monopolistic business practices.
Clayton Act
The Clayton Antitrust Act provides barriers to a broad range of anti-competitiveness issues. For example, topics such as price discrimination, price fixing and unfair business practices are addressed in the Act.
Federal Trade Commission Act
The Federal Trade Commission deals with complaints that are filed regarding unfair business practices such as scams, deceptive advertising and monopolistic practices. It reviews these complaints to determine if businesses are in fact engaging in harmful practices. The FTC is also responsible for reviewing mergers in the market to ensure that they do not hurt competition in the market and potentially harm consumers. Generally speaking, the FTC does not have the ability to directly enforce its rulings, but it can go to the courts to have them enforced.
Robinson-Patman Act
A federal law passed in 1936 to outlaw price discrimination. The Robinson-Patman Act is an amendment to the 1914 Clayton Antitrust Act and is supposed to prevent "unfair" competition. The act requires a business to sell its products at the same price regardless of who the buyer is and was intended to prevent large-volume buyers from gaining an advantage over small-volume buyers. The act only applies to sales of tangible goods that are completed within a reasonably close timeframe and where the goods sold are similar in quality. The act does not apply to the provision of services such as cell phone service, cable TV and real estate leases.