Physical and non physical markets – Flashcards
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Define a 'Competitive Market'
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A market in which a large number of producers actively compete with each other to satisfy the wants and needs of a large number of consumers. In practice, however they are in different degrees of competition.
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State physical market examples
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-Stalls at a market -Shopping center
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Define a 'Non-physical market'
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Market sellers compete with each other but do not meet or interact physically with buyers at all.
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State non-physical market examples
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-foreign currency market -ebay
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Advantages of non-physical/online markets markets
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-Customers can compare (prices, features etc.) -Can buy and deliver to their home (convenience) -Sellers can gain information and process data about customers buying habits so to better their production line and supply chain and advertise. -Sellers can operate cheaply from one or two locations and work a successful business. -Can buy products from abroad
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Advantages of physical markets
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-better customer attention/ customer service with access to information (this service comes at the cost of a higher product price.) -Customers can view the product in the flesh and consider quality, fit etc.
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Define 'me-tailing'
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Products that are custom created by the user online. For example, using predefined templates, users can create their own business cards on a Web site.
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Define 'A market'
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Any situation where buyers and sellers are in contact in order to establish a price
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Why is the 'market price' important?
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-All businesses have COMPETITORS and cannot charge prices so far out of line (unless a monopoly.) -It affects MARK-UP, if the market price was to rise so would mark-up and the business is expected to supply more because it is more profitable
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Define 'mark-up'
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The cost of producing an item and the price at which it is sold
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Failure to be aware of and respond to market price can lead to...
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-lower profits -negative affect on stakeholders (not receiving dividends due to lack of profits) -liquidation (worst case) The internet means business need to be more aware because markets are not only local.
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Complications with price in a competitive market
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-cannot increase price because customers will switch to a new supplier -no single producer can dictate a price (especially if products are very similar)
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Monopoly Definition
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A market controlled by a single business with over 25% market share (opposite of a competitive market.)
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Complications with price in a monopoly-dominated market
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-The monopoly will dictate the price because it is the main supplier -Monopoly's decisions may not be in the customers' interests in the LONGTERM (short term prices low= interest) -Destroyer pricing to eliminate competition
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'Monopolistic Competition' definition
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A large number of consumers with a large number of businessn each essentially the same products creating non-price competition; branded then promoted by the company. Each firm has a monopoly over their name used to promote minor differences.
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'Oligopoly' definition
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A market dominated by a few large firms with many other, smaller businesses who follow the lead of the oligopolists in terms of price and products.
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What illegal behavoir do some oligopolists conduct?
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Secret agreements to keep prices higher so that the smaller businesses lose revenue. If not the market price is 'sticky' because it is unchanging.
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Examples of oligopolies
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-Energy and gas companies - Airlines
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Define 'Market size'
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The number of individuals in a certain market who are potential/sellers of a product/ service
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Why is it important that a business should have an accurate idea of their market size?
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To plan the launch of a new product - Small businesses will not sell a large volume - A large market would have more potential sales but more competition
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Define 'Market Growth'
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An increase in the demand for a bsuiness' product(s) over a period of time
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What affect affcet will a recession have on 'market growth'?
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It will fall
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Why is competition advantagous for businesses?
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- Makes businesses more efficient - Encourages innovation and emphasis on customer needs
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Dissadvantages of competition for employees, suppliers and shareholders...
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-Employees: in attempt to keep costs down, the conditions of service may be compramised - Suppliers: may be bullied to keep costs low. Loyalty to a supplier may not be kept if the business is under a lot of pressure - Shareholders: low dividends, espically if business finds it difficult to cut costs.
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'Market dominance' definition
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The measure of strength of a business and its product(s) relative to competition
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What is one way of calculating 'market dominance'?
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-Market Share -Merger or take-over
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List ways to incraese marketshare
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1. Be aware of customer needs 2. Sell more to existing customers 3. Find out why 'old' customers no longer use the business 4. Have a clear marketing plan 5. Use a variety of marlketing techniques- 4Ps
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Define 'barriers to entry'
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The factors that could prevent a business from entering and competing in a market
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Define 'barriers to exit'
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The factors that could prevent a business from leaving a market, even if they would like to
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State some example of 'barriers to entry'
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- Large start-up costs e.g. capital costs (buildings and machinery) - Matching marketing budgets as those already in the industry; many will also have loyal customers -Large restricts such as patent or governmet restrictions -Innability to gain econemies of scale - Existing firms starting a price war/ destroyer pricing SOME ENTREPRENEURS AY SEE THESE AS TOO MUCH RISK
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Stated some 'barriers to exit'
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-Difficulty selling off expensive plant and machinery creating 'sunk' costs - High redundancy costs - Contracts with suppliers should be honoured or large pay-offs
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Ways to grow a business
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-Organic growth - Merger and aquisitions
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Outline 'organic growth'
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When a business grows by selling more of its own products to existing customers or finding new customers, assuming other businesses are not growing at a similar rate.
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Outline 'merger'
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When 2 bsuinesses join together to form a new laarger bsuiness that is more dominant.
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Outline 'takeover'
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Acquiring the control of another buisness by purchasing the majority of its shares causing the 'parent company' to increase dominance. This can cause the realtionship between owners and managers to be 'hostile.'
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Smaller firms in a large market should look to incraese market share and product prices by...
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1. operating in niche markets 2. Offer better customer serrvice 3. Offer longer opening-hours 4. use local resources to gain expertise and customers
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State what CMA stands for and what they regulate
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Competition and Markets Authority have the responsibility for enforcing competition laws. Have the power to investigate firms to see if anti-competition manner is active
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Sanctions that CMA can put in place incase of anti-competitive practises
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- fines up to 10% of their global turnover - customers and competitions can sue for damages - individuals can be disqualified from being a company director - fine individuals who fail to comply with CMA requests
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Utility businesses must regulate by...
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- independent bodies - competition laws - their licence