Entry and exit: Barriers to entry are high. The most important barriers are government licenses, economies of scale, patents, access to expensive and complex technology, and strategic actions by incumbent firms designed to discourage or destroy nascent firms. Additional sources of barriers to entry often result from government regulation favoring existing firms making it difficult for new firms to enter the market. Number of firms: "Few" – a "handful" of sellers. There are so few firms that the actions of one firm can influence the actions of the other firms. Long run profits: Oligopolies can retain long run abnormal profits.
Barriers to Entry: Barriers to entry are factors and circumstances that prevent entry into market by would-be competitors and limit new companies from operating and expanding within the market. PC markets have free entry and exit. There are no barriers to entry, or exit competition. Monopolies have relatively high barriers to entry. The barriers must be strong enough to prevent or discourage any potential competitor from entering the market. Elasticity of Demand: The price elasticity of demand is the percentage change of demand caused by a one percent change of relative price. A successful monopoly would have a relatively inelastic demand curve.
Firms combine labour and capital, and can achieve far greater economies of scale (when the average cost per unit declines as more units are produced) than individual market trading. In perfectly competitive markets studied in the theory of supply and demand, there are many producers, none of which significantly influence price. Industrial organization generalizes from that special case to study the strategic behaviour of firms that do have significant control of price. It considers the structure of such markets and their interactions. Common market structures studied besides perfect competition include monopolistic competition, various forms of oligopoly, and monopoly.
MarketingBranches of Marketing: Detailed Topicslist of marketing topics
;Competitive advantages & comparative advantages Businesses seek to compete by achieving competitive advantages or comparative advantages. Competitive advantages often focus on reducing costs through achieving one or more of the following: Economies of scope; Economies of scale; Experience effects; First-mover advantages. Alternatively a business may seek to develop develop uniqueness through product differentiation or developing unique competencies such as market sensing, rapid market response or delivering superior customer value. superior value.
EconomicsEconomic theorylist of economics topics
Network effect. Network externality. Operations research. Opportunity cost. Output. Parable of the broken window. Pareto efficiency. Price. Price discrimination. Price elasticity of demand. Price points. Outline of industrial organization. Production function. Productivity. Profit (economics). Profit maximization. Public bad. Public debt. Purchasing power parity. Rahn curve. Rate of return pricing. Rational expectations. Rational pricing. Real business cycle. Real versus nominal in economics. Regression analysis. Returns to scale. Risk premium. Saving. Scarcity. Seven-generation sustainability. Slavery. Social cost. Social credit. Social welfare. Specialization. Stock exchange. Subsidy.
natural monopoliesinformation monopolymonopolist
This barrier to entry reduces the number of possible entrants into the industry regardless of the earning of the corporations within. Natural monopolies arise where the largest supplier in an industry, often the first supplier in a market, has an overwhelming cost advantage over other actual or potential competitors; this tends to be the case in industries where fixed costs predominate, creating economies of scale that are large in relation to the size of the market, as is the case in water and electricity services.
switching costsswitching costcost of switching
Individual lock-in leads to collective lock-in as network effects drive more and more new users to adopt QWERTY and prevent current QWERTY users from switching to another layout. Collective switching costs affect competition by strengthening incumbents and hindering new entrants, who must overcome both the collective and individual switching costs to be able to succeed in the market. Recognition of these switching costs has recently led to several attempts to design alternative keyboard layouts which lower the barrier to entry by retaining many of the features of QWERTY. However, none of them is in widespread use. Switching costs are likely to be present in a large class of markets.
Sources of this market power are said to include the existence of externalities, barriers to entry of the market, and the free rider problem. Markets may fail to be efficient for a variety of reasons, so the exception of competition law's intervention to the rule of laissez faire is justified if government failure can be avoided. Orthodox economists fully acknowledge that perfect competition is seldom observed in the real world, and so aim for what is called "workable competition." This follows the theory that if one cannot achieve the ideal, then go for the second best option by using the law to tame market operation where it can.
fixed costsfixedcommon costs
Economists reckon fixed cost as a entry barrier for new entrepreneurs. In management accounting, fixed costs are defined as expenses that do not change as a function of the activity of a business, within the relevant period. For example, a retailer must pay rent and utility bills irrespective of sales. In marketing, it is necessary to know how costs divide between variable and fixed costs. This distinction is crucial in forecasting the earnings generated by various changes in unit sales and thus the financial impact of proposed marketing campaigns. In a survey of nearly 200 senior marketing managers, 60 percent responded that they found the "variable and fixed costs" metric very useful.
Michael E. PorterProfessor Michael PorterPorter
This study inspired the Porter five forces analysis framework for analyzing industries. Michael Porter is the author of 18 books and numerous articles including Competitive Strategy, Competitive Advantage, Competitive Advantage of Nations, and On Competition. A six-time winner of the McKinsey Award for the best Harvard Business Review article of the year, Professor Porter is the most cited author in business and economics.
Only normal profits arise in circumstances of perfect competition when long-run economic equilibrium is reached; there is no incentive for firms to either enter or leave the industry. Economic profit does not occur in perfect competition in long run equilibrium; if it did, there would be an incentive for new firms to enter the industry, aided by a lack of barriers to entry until there was no longer any economic profit.
In economics, successful product differentiation leads to competitive advantage and is inconsistent with the conditions for perfect competition, which include the requirement that the products of competing firms should be perfect substitutes. There are three types of product differentiation: The brand differences are usually minor; they can be merely a difference in packaging or an advertising theme. The physical product need not change, but it may. Differentiation is due to buyers perceiving a difference; hence, causes of differentiation may be functional aspects of the product or service, how it is distributed and marketed, or who buys it.
Economies of scale. Economies of density.
business strategycorporate strategystrategy
Porter defined two types of competitive advantage: lower cost or differentiation relative to its rivals. Achieving competitive advantage results from a firm's ability to cope with the five forces better than its rivals. Porter wrote: "[A]chieving competitive advantage requires a firm to make a choice...about the type of competitive advantage it seeks to attain and the scope within which it will attain it."
competitionmarket competitioncompetitive market
Later microeconomic theory distinguished between perfect competition and imperfect competition, concluding that perfect competition is Pareto efficient while imperfect competition is not. Conversely, by Edgeworth's limit theorem, the addition of more firms to an imperfect market will cause the market to tend towards Pareto efficiency. Real markets are never perfect. Economists who believe that in perfect competition as a useful approximation to real markets classify markets as ranging from close-to-perfect to very imperfect.
A trade secret is information that is intentionally kept confidential and that provides a competitive advantage to its possessor. Trade secrets are protected by non-disclosure agreement and labour law, each of which prevents information leaks such as breaches of confidentiality and industrial espionage.
The structure of a well-functioning market is defined by the theory of perfect competition. Well-functioning markets of the real world are never perfect, but basic structural characteristics can be approximated for real world markets, for example: Markets where price negotiations meet equilibrium, but the equilibrium is not efficient are said to experience market failure. Market failures are often associated with time-inconsistent preferences, information asymmetries, non-perfectly competitive markets, principal–agent problems, externalities, or public goods.
business modelsmodeloperating model
Chen (2009) stated that the business model has to take into account the capabilities of Web 2.0, such as collective intelligence, network effects, user-generated content, and the possibility of self-improving systems. He suggested that the service industry such as the airline, traffic, transportation, hotel, restaurant, information and communications technology and online gaming industries will be able to benefit in adopting business models that take into account the characteristics of Web 2.0. He also emphasized that Business Model 2.0 has to take into account not just the technology effect of Web 2.0 but also the networking effect.
The ability to identify which elements and/or moments of an ad contribute to its success is how economies of scale are maximized. Once one knows what works in an ad, that idea or ideas can be imported by any other market. Market research measures, such as Flow of Attention, Flow of Emotion and branding moments provide insight into what is working in an ad in any country or region because the measures are based on the visual, not verbal, elements of the ad.
industrial economicsindustrial economyindustrial organisation
Industrial organization adds real-world complications to the perfectly competitive model, complications such as transaction costs, limited information, and barriers to entry of new firms that may be associated with imperfect competition. It analyzes determinants of firm and market organization and behavior as between competition and monopoly, including from government actions. There are different approaches to the subject. One approach is descriptive in providing an overview of industrial organization, such as measures of competition and the size-concentration of firms in an industry.
focusgeneric competitive strategiesgeneric strategies
Porter defined two types of competitive advantage: lower cost or differentiation relative to its rivals. Achieving competitive advantage results from a firm's ability to cope with the five forces better than its rivals. Porter wrote: "Achieving competitive advantage requires a firm to make a choice...about the type of competitive advantage it seeks to attain and the scope within which it will attain it."
businessGlobal BusinessInternational Business Administration
According to Hymer, there are two main determinants of FDI; where an imperfect market structure is the key element. The first is the firm-specific advantages which are developed at the specific companies home country and, profitably, used in the foreign country. The second determinant is the removal of control where Hymer wrote: "When firms are interconnected, they compete in selling in the same market or one of the firms may sell to the other," and because of this "it may be profitable to substitute centralized decision-making for decentralized decision-making".
Big Pushtheory of the big push
However in underdeveloped countries, conditions of perfect competition are not present due to the decentralized and differentiated nature of the market. Prices fail to act as a signalling system in the following ways: This justifies the need for centralized pan-industry planning of investment in Developing countries, as the private sector cannot undertake such planning. Enlargement of the market size is another important externality which arises from the complementarity of industries. There exists an incentive to expand the scale of operations because the employees of one industry become the customers of another industry.
market formmarket formsnon-competitive markets
. * Natural monopoly, a monopoly in which economies of scale cause efficiency to increase continuously with the size of the firm. A firm is a natural monopoly if it is able to serve the entire market demand at a lower cost than any combination of two or more smaller, more specialized firms. 4. Perfect competition, a theoretical market structure that features low barriers to entry, identical products with no differentiation, an unlimited number of producers and consumers, and a perfectly elastic (linear) demand curve.
Long-run cost and production functions. long-run average cost. long-run production function and efficiency. returns to scale and isoclines. minimum efficient scale. plant capacity. Economies of density. Economies of scale. the efficiency consequences of increasing or decreasing the level of production. Economies of scope. the efficiency consequences of increasing or decreasing the number of different types of products produced, promoted, and distributed. Network effect. the effect that one user of a good or service has on the value of that product to other people. Optimum factor allocation. output elasticity of factor costs. marginal revenue product. marginal resource cost.