This document provides an overview of distortions to perfect competition in markets. It discusses how markets are often dominated by large firms and brands, which creates imperfect competition rather than many small competitors. It also outlines some legislative measures used by governments to preserve competitive markets, such as competition laws and regulatory bodies that investigate anti-competitive practices used by powerful firms.
This document provides an overview of distortions to perfect competition in markets. It discusses how markets are often dominated by large firms and brands, which creates imperfect competition rather than many small competitors. It also outlines some legislative measures used by governments to preserve competitive markets, such as competition laws and regulatory bodies that investigate anti-competitive practices used by powerful firms.
This document provides an overview of distortions to perfect competition in markets. It discusses how markets are often dominated by large firms and brands, which creates imperfect competition rather than many small competitors. It also outlines some legislative measures used by governments to preserve competitive markets, such as competition laws and regulatory bodies that investigate anti-competitive practices used by powerful firms.
LIMITATIONS TO PERFECT COMPETITION • Only really applies where production techniques are simple and opportunities for economies of scale are few • Markets often dominated by large buyers • Naïve to assume that high prices and profits in a sector will attract new entrants • Often not complete information available to all buyers / sellers
BRANDING • A brand is a short-hand description of a bundle of distinctive service features • Branding creates a distinct position for a product offer / organisation • A brand creates a “unique” product with a market of its own, and therefore less direct competition • Distinguish functional and emotional dimensions of a brand
DIFFERENTIATION LEADS TO BRANDING • Don’t just sell generic cola • Sell branded cola • Aim to create uniqueness associated with the brand • But buyers must value this point of differentiation
THINKING AROUND IF YOU WERE SELLING THE POTATOES, HOW WOULD SUBJECT YOU DIFFERENTIATE THEM? • Sell specially selected potatoes? • Deliver them to customers’ homes? • Offer a money back guarantee of quality? • Sell prepared /processed potatoes? • As a result of the above, develop a strong BRAND IDENTITY
KEY CHARACTERISTICS OF A BRAND To be effective, a brand needs the following: – consistency – to reduce buyers’ level of perceived risk – to offer a range of functional and emotional attributes which are of value to buyers • Brands have “functional” and “emotional” dimensions
CREATING A DISTINCTIVE BRAND Key areas for decisions: – Choice of name – Distinctive visual identity – Distinctive service features and positioning – Distinctive brand personality and – CONSISTENT DELIVERY!
DISTINCTIVE BRAND NAME • What image is sought? • Brand name should allow future development: – Entry to new business sectors (e.g. Aviva) – Entry to new international markets • Difficult for a service brand name to recover from bad reputation – change name e.g. Arthur Anderson > Accentrure
THINKING AROUND CREATING A BRAND IN THE CYBERSPACE SUBJECT
• Brand managers must increasingly interact
with user generated blogs to create brand identity • Research organisation Virtue records conversations for brands on a variety of social media. In 2009 it reported that the brands of iPhone, CNN, Starbucks, Apple and iPod dominated the social space. • How does a company develop its brands online?
OLIGOPOLY • Oligopoly market is dominated by a small number of sellers who provide a large share of the total market output • All suppliers in the market are interdependent • One company cannot take price or output decisions without considering the specific possible responses of other companies
MONOPOLISTIC MARKETS • A scale monopoly occurs where one firm controls 25 % of the value of a market • A complex monopoly occurs where a number of firms in a market together account for over 25% of market value • Effect of monopoly to reduce output and raise prices • Pure monopoly is rare
HOW COMPETITIVE IS A MARKET? • Even in imperfectly competitive markets, the level of competition varies • Big effects of barriers to entry to market • Legislative change can change the nature of competition (e.g. deregulation of UK gas supply market)
GOVERNMENT COMPETITION POLICY Seeks to overcome problems of – The presence of large firms that are able to exert undue influence over the market – Collusion between sellers (and sometimes buyers) – Barriers to market entry and restraints on trade – Rigidity in resource input markets
THINKING AROUND IS MICROSOFT TOO THE POWERFUL? SUBJECT
• Long running dispute between the
EU and Microsoft • By 2008, EU had fined Microsoft €1.68 billions for anti-competitive practices • Is the EU being too harsh on a successful company, or has Microsoft abused its powerful market position?
RECENT OFT / COMPETITION COMMISSION FINDINGS • 2009 ordered BAA to sell some of its airports to increase competition within the sector • 2007 £121m fine on British Airways and Virgin Atlantic for colluding on flight fuel surcharges • 2007 Dairy processors and supermarkets fined £116m for colluding to fix prices of dairy products • 2006 50 independent schools fined £500,000 for colluding on fees
THINKING AROUND IS THIS PERFUME TO THE EXPENSIVE? SUBJECT
• Perfume prices higher in UK than
many other countries • Perfume companies try to reduce price competition, e.g. by restricting sales via supermarkets • OFT held that this was OK – ‘a low price would be perceived by buyers as an inferior product’
PRICING OF PUBLIC SERVICES • Social and political considerations may be important • No straight forward cost-volume-price relationship • Issues of equity may be involved
ARE THERE PUBLIC SERVICES WHICH CANNOT BE PRICED? • Roads previously considered a public service and consumers not charged a price • What about health and education services? • Or University tuition fees?
SUMMARY You should now understand • The effects of market structure on firms’ output and pricing decisions • The role of brands in reducing generic competition • The causes and consequences of market imperfection • Legislative measures designed to preserve competitive markets
CASE STUDY COMPETITIVE MARKET FOR MOBILE PHONES STILL NEEDS REGULATION • Mobile phones often compete fiercely with each other • But buyers can be vulnerable to anti-competitive practices by phone firms, e.g. agreements between firms for “termination charges” • How do governments strike a balance between competition and regulation?