Chapter 22: Competitive markets
(a) Thames Water does not have any competition, as they are the sole supplier of water for London, however, Maze has a lot of competition as there are about 5,500 restaurants, and Maze is only one of 5,500.
(b) Because of the competition, consumers will benefit from restaurants lowering prices and increasing the quality of food however, for Thames Water there is no competition so they do not have to worry about price or quality because they know that everyone needs water and Thames Water is the only company providing it.
What is a competitive market?
Competition is the rivalry between firms when trying to sell goods in a particular market. In some markets there is a lot of competition. In competitive markets there are likely to be a few common features such as: A large number of buyers and sellers, Firms have basically no control over price charged because if they charge more than their rivals they will lose business.
Competition and the firm
Generally, firms do not welcome competition. Most firms would prefer to dominate the market and become a Monopoly because they have no threat of rivals, and can alter prices and quality with ease. There is also less pressure to be efficient and innovative. This reduces the effort for the company to survive and succeed. When faced with competition, firms have to offer products that give consumers value for their money. This involves: operating efficiently by keeping costs as low as possible, providing good quality products with high levels of customer service, charging prices which are acceptable to customers, and reviewing and improving the product.
The main disadvantage to a firm operating in a competitive market is that the amount of profit made will be limited. In markets where competition is fierce, prices are likely to be lower and the potential for profit also lower. The total profit in the industry has to be shared between many firms....
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