Transcript price competition

INTERACTION OF FIRMS IN THE MARKET COMPETITION
WHY firms compete with each other ?
1]
Attain their goals ( e.g.; Profit maximisation, Sales maximisation, satisficing etc)
2]
Increase Market share
MARKET SHARE:
“The part of the total sales met by an individual firm”
MARKETING: “Marketing involves identifying and then satisfying consumer
needs and wants”
The 4 P’s that govern marketing are:
a) PRODUCT
b) PLACE
c) PROMOTION
d) PRICE
HOW do firms compete against each other?
1)
PRICE COMPETITION
2)
NON- PRICE COMPETITION
PRICE COMPETITION - EXAMPLES:
• a) Sale price
• b) Discounts
• c) Buy-one-get-one-free
• d) Interest free terms
• e) Loss leader: an item sold deliberately at such a low price that the
firms make a loss on it. This is done in the hope of attracting customers
into the shop, hoping they will buy other items as well. They expect the
loss to be recovered from the sale of the additional items!
NON - PRICE COMPETITION
1) PRODUCT DIFFERENTIATION
2) PRODUCT VARIATION
PRODUCT DIFFERENTIATION
a) Advertising
b) Packaging
c) Branding
d) Services
e)
f) Location
Sponsorship
g) Loyalty schemes
h) Competitions
Producers make their products ‘appear different’
and superior to their competitors’ products.
Producers give their products some ‘real’
modifications and make it actually different to
other products
PRODUCT VARIATION
Production Modification
New features added to
a product e.g Airbags
in car
Vertical Product
Variation
Same product
designed for
different income
levels e.g Toyota car
models.
PRICE COMPETITION - SIZE OF FIRMS
INDUSTRIES COULD COMPRISE OF…...
MANY SMALL FIRMS
SOME DOMINANT
LARGE FIRMS
FEW LARGE FIRMS
Price competition acceptable
Price leadership by
dominant firm
Price competition avoided
No firm greatly disadvantaged
Dominant firm gains
advantage over small firms
Price competition could
lead to ‘Price war’
E.g., competition between
dairies
E.g., competition between
supermarkets & dairies
E.g., competition
between car
manufacturers
NON-PRICE COMPETITION
ADVANTAGES & DISADVANTAGES
CONSUMERS
ADVANTAGES:
• More choice / Variety
• Better Quality
• Better service
• Opportunities to win
Competitions
• Increase in Knowledge of
the product
DISADVANTAGES:
• Prices increased
• Unwanted purchases
• Non –existing demand
generated
PRODUCERS
ADVANTAGES:
• Increases demand
• Greater Sales & Profits
• Avoids Price Wars
DISADVANTAGES:
• Increased costs of
production
• Reduced profit