Competitive Markets
How competition shapes a business: what a market and competition are, how a firm competes on price, quality, service and a unique selling point, what happens with little competition, and the risks a business takes and reduces.
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Fighting for the customer
Most businesses share their market with rivals all chasing the same customers, and that competition shapes what they can do. To win, a firm has to stand out on price, quality, service or something unique. This module works through what a market and competition are, how a business competes, what happens when there are few rivals, and the risks that come with running a business.
Market words to know
Learn these before you enter the market.
Lots of rivals against few
How much competition there is changes what a business can do.
Name the exact pressure
In the exam, name the exact pressure the business faces, not competition in general. In a crowded market a firm has to win on something, whether a lower price, higher quality, better service or a unique selling point, or shoppers go elsewhere. Where rivals are few, a firm has more freedom over price. Business is always risky, so owners plan, research and adapt to cut that risk, and take it on for the reward of profit and independence.
Match the term
- market
- competition
- risk
- unique selling point
- where buyers and sellers trade
- rivals chasing the same customers
- the chance a plan does not work out
- a feature that sets a firm apart
Match the way to compete
- lower prices
- better quality
- good customer service
- a unique selling point
- undercuts rivals to win customers
- makes the product stand out
- keeps buyers coming back
- offers what rivals do not
How do you keep customers?
In a very competitive market, what must a business usually do to hold on to its customers?
- Compete on price, quality or service
- Ignore its rivals completely
- Raise its prices far above rivals
- Stop advertising altogether
True about competition
Select the TWO true statements about competitive markets.
- In a competitive market a business cannot charge too much
- A unique selling point helps a business stand out
- With no competitors a firm has less freedom over price
- Running a business carries no risk at all
Total the market sales
A market has 4 rival firms, and each one sells 200 units a week. Multiply the number of firms by the units each sells to find the total units sold in the market each week. What is the answer?
Order the response
Put a business response to a new competitor in order, earliest first.
- A new rival opens nearby and takes some customers
- The business researches what the rival offers
- It improves its price, quality or service
- It wins back customers and lowers the risk
Complete the rules
Where buyers and sellers come together to trade is a _____. Rival firms chasing the same customers is _____. A feature that sets a business apart from its rivals is its unique selling _____. The chance that a business plan does not work out is a _____.
Spot the ways to compete
Tap the TWO ways a business can compete in a crowded market.
- offering lower prices than rivals
- giving better customer service
- ignoring what rivals do
- charging far more than rivals
Read the market
Read each case and choose the best answer.
- A new coffee shop opens next to an existing one and takes some of its customers. What is this an example of?
- A firm is the only seller of a product, so it faces almost no rivals. What does this give it?
- Why do entrepreneurs start businesses even though it is risky?
Explain competitive markets
Explain the impact of competition on a business and how it responds.
- Explain what a market and competition are
- Explain how a business competes in a crowded market
- Explain the risks a business faces and how it reduces them