Different kinds of competition

July 25, 2009 Dr. Shawn Cunningham

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If we assume that competitiveness is essential for economic growth, then it is important to explore the reasons why so many people do not like competition. Perhaps we all work with someone who is very competitive that can turn even getting to the water cooler first into a lifeand-death rush. From a developmental perspective many people are uncomfortable with competition, because we have all seen so many people marginalised because of their uncompetitive situation. This despite the depth of academic literature on the importance of competition in allocating resources to the economic actors most able to convert the resources into goods and services productively. However, we all love it when our favorite sports team out-compete their competitors. So it seems like we all dislike certain aspects of competition, and yet we also like certain aspects of competition. To explore this topic more I will discuss 3 kinds of competition:

the characteristics of individual competitiveness; the characteristics of organisational or team competitiveness; and the characteristics of geographic competitiveness.

The characteristics of individual competitiveness For the sake of this discussion I will use an individual athlete as an example. For our athlete to be able to compete in the 3000 meter track item, she needs certain clothes and shoes. She must work on her fitness and diet, and may require coaching to master the technical aspects of her item. But this does not yet make her competitive. In order to be competitive, she needs to practice hard. This requires mental and physical discipline, and would require many personal sacrifices. The more she competes, the more she would have to invest not only in participating in different events, but she may require sophisticated shoes, other gadgets, specialised coaching and other costs known only to athletes! The characteristics of organisational competitiveness

For an organisation to be competitive, it requires more than the right gear, mental and physical discipline of a few individuals and an exercise programme. Organisations, whether it be private or public, needs more. It needs various management systems, protocols (some kind of a language or common code), and different modes of cooperation between individuals. Leadership, different specialised competencies and technology is used to increase the competitiveness of organisations. Think of a racing team, where even if there is a world-famous driver in the seat, need to operate almost like a single organism in order to outperform the other teams. Here it is not enough for one person to be smart, people need to be smart collectively. Leaders who can empower or develop their staff and that can optimise the talents or resources at their disposal can outwit their competitors through a process of ongoing innovation and investment. The characteristics of geographic competitiveness For individuals and organisations to compete, the competitiveness of their geographic environment will start to matter at some point. While a amateur athlete or a bakery can operate in many different locations, their ability to compete with their competitors are influenced by their environment. Michael Porter and other authors have all written about this phenomenon. Places compete through the combinations and relationships between different individuals and organisations, and places where there is a dense interaction between different people seem to outperform places where the interaction and transactions are lower. There is also a relationship between the ability of firms to compete in their own geographic domains and their ability to compete elsewhere. Furthermore, as firms grow and become more competitive, they become more dependent on specialisation both inside the firm and in their environment. This means that places that cannot offer specialised services, either in the form of direct employment or through specialised providers or institutions, will be disadvantaged. To make this even more complicated, there is a relationship between the competitiveness of firms and individuals and the competitiveness of region, and vice versa. Societies or communities that are able to stimulate a competitive process or debate on different developmental or innovative approaches tend to also outperform regions where there are fewer options available due to an inability to manage the tension of a creative search process for different alternatives. For instance, in Germany, many development agencies compete for public funds through innovative bids, forcing these agencies to be creative in their approaches in order to achieve impact and resource optimisation. Conclusion We need to stimulate a competitive mindset both in individuals and organisations in order to strengthen the competitiveness of regions. To achieve this, we need to understand the different factors that hamper or stimulate competitiveness at the different levels, and the relationship between the different factors. Attempting to ignore competition and its role in resource optimisation in societies is futile, so we have to work on getting more people thinking about

ways to improve competitiveness. The best thing we can do, is to equip the marginalised with the mental and physical discipline. One of the best ways to get these individuals into the race is through training (education) as this develops both the mental and physical discipline that is required to be part of the competition.

Forms of competition
Monopoly

A monopoly is a market structure in which there is only one seller of a type of good. From an economic standpoint, this is the least ideal of the market types. Because there is only one seller, there is no competition to affect quality or price. Entry into the market is difficult if not impossible, so buyers are at the mercy of the business decisions of the one seller. Without competition, there is little incentive to innovate or improve the product.

Oligarchy

The second to least ideal market situation, from the standpoint of economics, is an oligarchy. In this market structure, there are only a few sellers of a given product. These actors are well established, and the cost for new sellers to enter the market is very high. The existence of only a few sellers creates a situation in which there is more competition than a pure monopoly, but the high barriers to entry still stifle competition and innovation. These few sellers can sell products that are either identical to one another or slightly different.
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Imperfect Competition

Economists refer to a market that has many sellers offering somewhat different products as "monopolistic competition" or "imperfect competition." In this type of market, sellers compete on the basis of which features set their products apart from the other products in the market. These can be features such as laptops with a longer battery life, faster processors or brighter screens. These markets have low costs of entry, so sellers can enter the market with ease to spur competition and innovation.

Pure Competition

Markets that offer "pure competition" feature a level playing field between all sellers. In it, there are many sellers that can easily enter the market, selling an identical good. Because the goods are identical to one another, sellers are forced to accept the market's price for these goods since no single seller can affect the market's price. Firms proceed to compete on the basis of items, such

as customer service, to entice buyers to purchase from them as opposed to other sellers.

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Competition is the battle between businesses to win consumer acceptance and loyalty. The free-enterprise system ensures that businesses make decisions about what to produce, how to produce it, and what price to charge for the product or service. Competition is a basic premise of the free-enterprise system because it is believed that having more than one business competing for the same consumers will cause the products and/or services to be provided at a better quality and a lower cost than if there were no competitors. In other words, competition should provide the consumers with the best value for their hard-earned dollar.

ASPECTS OF COMPETITION
To be successful in today's very competitive business world, it is important for businesses to be aware of what their competitors are doing and to find a way to compete by matching or improving on the competitors' product or service. For example, if Pepsi-Cola offers a new affeine-free soda, Coca-Cola may offer a new affeine-free soda with only one calorie. By offering an improvement on the competitor's product, Coca-Cola is trying to convince soft-drink consumers to buy the new coke product because it is an improvement on Pepsi's product. While being aware of the competition and making a countermove is important, it is also very important to pay attention to changing consumer wants, needs, and values and to make the needed changes before the competition does. Doing research and development and being the first to provide a new product or service can give a company a competitive advantage in the marketplace. Once consumers purchase a product or service and are satisfied with it, they will typically purchase the same product again. Having a competitive advantage means that a company does something better than the competition. Having a competitive advantage might mean inventing a new product; providing the best quality, the lowest prices, or the best customer service; or having cutting-edge technology. To determine an area where a company might have a competitive advantage, a SWOT analysis is often done to identify the company's internal Strengths and Weaknesses and the externalOpportunities and Threats. A SWOT analysis lets the company know in which area(s) it has a competitive advantage so it can concentrate on those areas in the production and marketing of its product(s) or service(s). In addition to staying on top of changing consumer preferences, companies must constantly be looking for ways to cut costs and increase productivity. Companies must provide consumers

with the best-quality product at the lowest cost while still making a profit if they are to be successful competitors in the long run. One way to remain competitive is through the use of technology. Technology can help speed up production processes through the use of robots or production lines, move information more accurately and more quickly through the use of computer systems, and assist in research and development proceedings. Global competition has made gaining consumer acceptance an even tougher challenge for most businesses. Firms in other countries may be able to produce products and provide services at a lower cost than American businesses. In order to compete, American businesses must find other ways to win consumers. One way for businesses to accomplish this is through competitive differentiation. Competitive differentiationoccurs when a firm somehow differentiates its product or service from that of competitors. Competitive differentiation may be an actual difference, such as a longer warranty or a lower price, but often the difference is only perceived. Difference in perception is usually accomplished through advertising, the purpose of which is to convince consumers that one company's product is different from another company's product. Common ways to differentiate a product or service include advertising a better-quality product, better service, better taste, or just a better image. Competitive differentiation is used extensively in the monopolistic form of competition, discussed below.

FORMS OF COMPETITION
Although each form has many aspects, not all of which can be considered here, competition can generally be classified into four main categories: perfect competition, monopolistic competition, oligopoly, and monopoly. (Table 1 summarizes the basic differences among these four types of competition.) Perfect Competition Perfect competition (also known as pure competition) exists when a large number of sellers produce products or services that seem to be identical. These types of businesses are typically run on a small scale, and participants have no control over the selling price of their product because no one seller is large enough to dictate the price of the product. Instead, the price of the product is set by the market. There are many competitors in a perfect competition industry, and it is fairly easy to enter or leave the industry. While there are no ideal examples of perfect competition, agricultural products are considered to be the closest example in today's economy. The corn grown by one farmer is virtually identical to the corn grown by another farmer, and the current market controls the price the farmers receive for their crops. Perfect competition follows the law of supply and demand. If the price of a product is high, consumers will demand less of the product while the suppliers will want to supply more. If the price of a product is low, the consumers will demand more of the product, but the suppliers will be unwilling to sell much at such a low price. The equilibrium point is where the supply and

the demand meet and determine the market price. For example, if the going market price for wheat is $5 a bushel and a farmer tries to sell wheat for $6 a bushel, no one will buy because they can get it for $5 a bushel from someone else. On the other hand, if a farmer offers to sell wheat for $4 a bushel, the crop will sell, but the farmer has lost money because the crop is worth $5 a bushel on the open market. Monopolistic Competition Monopolistic competition exists when a large number of sellers produce a product or service that is perceived by consumers as being different from that of a competitor but is actually quite similar. This perception of difference is the result of product differentiation, which is the key to success in a monopolistic industry. Products can be differentiated based on price, quality, image, or some other feature, depending on the product. For example, there are many different brands of bath soap on the market today. Each brand of soap is similar because it is designed to get the user clean; however, each soap product tries to differentiate itself from the competition to attract consumers. One soap might claim that it leaves you with soft skin, while another soap might claim that it has a clean, fresh scent. Each participant in this market structure has some control over pricing, which means it can alter the selling price as long as consumers are still willing to buy its product at the new price. If one product costs twice as much as similar products on the market, chances are most consumers will avoid buying the more expensive product and buy the competitors' products instead. There can be few or many competitors (typically many) in a monopolistic industry, and it is somewhat difficult to enter or leave such an industry. Monopolistic products are typically found in retailing businesses. Some examples of monopolistic products and/or services are shampoo products, extermination services, oil changes, toothpaste, and fast-food restaurants. Oligopoly An oligopoly (which is described more completely in another article) exists when there are few sellers in a certain industry. This occurs because a large investment is required to enter the industry, which makes it difficult to enter or leave. The businesses involved in an oligopoly type of industry are typically very large because they have the financial ability to make the needed investment. The type of products sold in an oligopoly can be similar or different, and each seller has some control over price. Examples of oligopolies include the automobile, airplane, and steel industries. Monopoly A monopoly (which is described more completely in another article) exists when a single seller controls the supply of a good or service and prevents other businesses from entering the field. Being the only provider of a certain good or service gives the seller considerable control over price. Monopolies are prohibited by law in the United States; however, government-regulated Types of Competition

Characteristics

Perfect Competition

Monopolistic Competition

Oligopoly

Monopoly

Number of competitors Ease of entry or exit from industry Similarity of goods/services offered by competing firms

Many

Few to many

Very few

No direct competition Regulated by U.S. government

Easy

Somewhat difficult

Difficult

Seemingly Same different but may be quite similar

Similar or different

No directly competing products

Considerable (in Individual firm's None (set by the control over price market) Some Some true monopoly) Little (in regulated one) Fast-food restaurant Automotive manufacturer

Examples

Farmer

Power company

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monopolies do exist in some business areas because of the huge up-front investment that must be made in order to provide some types of services. Examples of monopolies in the United States are public utility companies that provide services and/or products such as gas, water, and/ or electricity.