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Competition in Economics

Competition in Economics. Abstract models and reality. Perfect competition Tiny firms Price takers Identical products Only normal profit Prod. & Alloc. efficiency. Monopoly Single supplier Sets p or q. Price above cost? Abnormal profit Inefficiency?. Spectrum of competition.

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Competition in Economics

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  1. Competition in Economics Abstract models and reality

  2. Perfect competition Tiny firms Price takers Identical products Only normal profit Prod. & Alloc. efficiency Monopoly Single supplier Sets p or q. Price above cost? Abnormal profit Inefficiency? Spectrum of competition

  3. Imperfection, e.g. Oligopoly • Major & minor players • High concentration ratio • Differentiation • Interdependence • Fierce competition? • Collusion? • Contestable?

  4. Competitive advantage • Definition: • A distinctive feature that makes a business successful

  5. PRODUCT New Latest Best PROCESS Costs cut Quality Focus Innovation

  6. Reputation • Word of mouth • Brands • Marketing

  7. Relationships • Trust • Value • Inertia

  8. Cost leadership • Process innovation • Economies of scale • Technical efficiency

  9. Differentiation • Product innovation • Reputation/quality • Marketing

  10. Focus • Matching requirements • Niche? • Customise?

  11. Barriers to entry/exit • Natural: • High start-up costs • Sunk costs

  12. Barriers to entry/exit • Artificial: • Patents • Marketing budgets • Brand proliferation • Predatory behaviour • Supply chain control

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