Market Characteristics

University Degree Business and Administrative studies

Competitive Markets:

A competitive market is a market that has lots of companies providing or selling the same product or service (homogeneous goods). Because of this customers will choose which product or service to purchase, on their quality and value of money, so companies in a competitive market usually compete with each other in quality and value. Because of this it is easy for the customer to substitute one company’s product for another company’s product.

One characteristic of a competitive market is that consumers won’t care whose product they buy, they don’t have any preference to one. But usually you might find that customers will have a certain loyalty to one brand, so other companies will have to try and convince them to buy their product instead. They might do this through advertising and promotions or possibly by pushing their prices down.

Another characteristic of a competitive market is that, usually their will be no barriers of entry. This means that it would be quite easy for new firms to enter the market. This could be because the market does not require much money to enter because the machinery used in the business doesn’t cost that much, also it could be easy to enter the market because you do not need many qualifications or licences to operate under.

In competitive markets, often companies will be price takers they will just take the market price. This is because if they put their prices up, because the market is so competitive they could lose a lot of sales. If the companies put their prices down they will probably not make as much profit as there is such a big selection, they probably won’t make many more sales to make it worth lowering the price.

One other characteristic in a competitive market is that because of the number of firms within the market it’s impossible and ...

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One other characteristic in a competitive market is that because of the number of firms within the market it’s impossible and illegal, for firms to come together and create a cartel and set prices. This means that firms are not allowed to come together and agree between them what to price set their prices at, to make more money. When firms do this they usually have an unwritten agreement, that they will set prices high so they can all make more money. This usually only happens in uncompetitive markets as there will be hardly any businesses in the market so it is easier to set up an agreement.

The last characteristic of competitive markets is that usually because there are so many businesses in the market; companies find it hard to make huge profits. Because as the start up costs are usually low, it means that the company will probably be selling something that does not sell for such a high price, so they would have to sell lots of the products to make a decent profit. If all of these characteristics apply to a market, but there is not many company’s in the market at the time, the company in the market will be able to set the price as high as they want so it is easy for high profits to be made. This will then attract other companies to the market; this increase in supply will push the prices down as companies will be competing on price for sales.

Uncompetitive Markets:

An uncompetitive market is a market that has hardly any firms providing or selling the product or service. This is also known as an oligopolistic market. Companies within an oligopolistic market are known as oligopolies. If there is only one company in an uncompetitive market, then they will monopolise the market.

A characteristic of an uncompetitive market is that the market usually has lots of barriers for entry, like the start up costs will often be high; the competition will usually be a big, established, and well known company, also you will often need lots of licenses and qualifications.

Another characteristic of an uncompetitive market is that firms will sometimes come together with an unwritten agreement to form a cartel, to push prices up, so they can make bigger profits. This is also illegal though. They agree to set their prices high, so people have no choice but to buy the product for that price. There is also the theory of interdependence, which is practically the same as forming a cartel but it’s just not an agreement. It is when companies will know to put their prices up together so

that they can all make higher profits; this is not illegal as the companies have not made an agreement together.

The final characteristic of an uncompetitive market is that often, unless it’s a niche market, big profits are made. Because the start up costs are so high this means that the companies will usually be producing a product that sells for a lot of money. As they might be the only one in the market and selling their products for a lot of money, they will probably be making huge profits.

My Business:

My business which is a house cleaning service, will be in a competitive market. Because there is quite a few cleaning services in the market around Melksham and Wiltshire, there are not many barriers of entry as start up costs are little, you also do not need any qualifications and not many licenses. The only thing I will need to do is to get planning permission to run a business from home, and to register my business and get the required business licenses. Because it is a competitive market, when I first enter the market I will need to establish my name quickly, by providing quality service with value for money.