Understanding market competition part 1

Understanding market competition part 1


To comprehend market competition, first, divide the word "market competition" into two terms and learn about each of them separately. A market is a gathering place for two or more persons to exchange commodities, services, or any other type of information.


In general, a market is a location where sellers trade money for their goods and services. The market might differ depending on the products or services supplied and other considerations such as government regulation, taxes, currency legality, pricing ceilings, buyer targets, and so on. The most basic definition of the word competition is when two or more parties compete for a competitive advantage or defeat one another.


When one party wins in a competition, the other inevitably loses. We may derive from studying the terms market and competition when two or more enterprises or organizations compete for profit utilizing diverse techniques.

Leveraging technology, such as software analytics from ArrowHead can help companies stay ahead of market competition. These tools collect and analyze data from various sources, enabling companies to make informed decisions and identify opportunities faster than competitors relying on manual analysis. Real-time insights allow swift responses to changing market conditions and customer preferences.


Companies in this sort of market competition aim to acquire a competitive advantage over their competitors by offering a wide range of items of high quality, as well as using advertising and other marketing methods.


There are four basic types of market competition, each with its own set of characteristics. You will learn about the many kinds of market rivalry and the characteristics of each market competition system in this post.


Different types of market competition

Knowledge of market competition allows businesses to develop well-informed strategic plans. By analyzing competitors' strengths and weaknesses, companies can identify opportunities to differentiate themselves and gain a competitive advantage. It helps in setting realistic goals and defining the path to achieve them.


Monitoring competitors' pricing strategies is essential for setting competitive and profitable prices. It helps companies avoid pricing themselves out of the market or engaging in price wars that can harm profitability. Businesses can also use pricing intelligence to offer value-added services or discounts that attract customers.



Recognizing potential threats from competitors, such as new market entrants or disruptive technologies, allows companies to develop contingency plans. Being prepared for competitive challenges helps mitigate risks and maintain long-term sustainability.


Knowledge of the competitive landscape can lead to strategic partnerships and collaborations with complementary businesses. Such alliances can create opportunities for expanding market reach, sharing resources, and achieving mutual growth.


Understanding the competitive dynamics in different markets or regions is crucial for successful expansion strategies. Companies can tailor their approaches to fit local competitive conditions and adapt to varying consumer preferences.

There are four types of market competition, and they are sometimes referred to as market structures. In economics, market structure refers to how different industries are classed and distinguished based on the degree and form of products and service competition. Its based on the features that influence the behavior's and outcomes of businesses in a certain market.


1. Monopoly

When there is just one seller in a market, it is called a monopoly. The corporation is in charge of an entire industry or sector. In capitalist economies, a monopoly exists when the government does not influence the business transactions of enterprises. One corporation or a group of people obtains control of the entire market in such instances.


All items, suppliers, infrastructure, commodities, and assets associated with a particular service or product are under the corporations ownership. Monopoly markets are an extremely undesirable market structure. If a corporation has a monopoly in a market, it can charge whatever price it wants for the goods or services it provides because no one can stop it.


Monopolies have a competitive advantage over their rivals since they are either the only provider of the product or control the entire market or the largest share of it. Because of the high barrier to entry, it isn't easy to enter a monopoly market. Because of the following two probable reasons, a monopoly corporation can expand its market power.

  1. It has obtained the product or services patent.
  2. The government has given the corporation permission to deliver specific services.


How pricing and output are determined in a monopoly situation



P = Price

Q = Quantity

MR = Marginal Revenue

ATC = Average Total Cost

MC = Marginal Revenue


Takeaway points

  • By default, a monopoly earns supernormal profits.
  • To maximize profit, the firm will produce where Demand intersects Average Revenue and Price (D =AR =P).
  • The firm has to produce at the point of minimum average total costs (ATC) to maximise revenue.
  • To maximize output, the firm has to produce at the point of intersection between average total cost (ATC) and Demand.
  • To minimize welfare loss, a monopoly produces when marginal cost is equal to Demand (MC = D).


Monopoly market competition is unfavorable because the monopoly corporation has complete control over the products price. Because there are no local competitors, there is no one to keep an eye on the company's price.


As a result, monopoly products are typically sold at a greater price than their actual prices. In a monopoly competition market, small competitors have a hard time surviving. The monopoly has good relations with the suppliers because it is the oldest and most potent (financially) player in the market.


As a result, they can buy raw materials in bulk and keep them for longer periods. They frequently buy a large quantity of supplies at a low cost, which is not viable for small businesses.


As a result, monopolies can launch a pricing war to reclaim their customers. They can reduce production costs to such an extent that a tiny competitor will be unable to compete. The government creates policies to ensure that no corporation can develop a monopoly and that each rival has a fair portion of the market.


Market structures can be well understood in economics by evaluating various aspects or characteristics displayed by different players. The following seven key characteristics are commonly used to distinguish these marketplaces. The industry's buyer structure, the turnover of customers, the extent of product differentiation, the nature of costs of inputs, the number of players in the market, vertical integration extent in the same industry and the most significant players market share to mention but a few.


The second part of this article will be focusing on perfect competition.


Nyasha D Ziwewe is a consultant at Industrial Psychology Consultants (Pvt) Ltd a management and human resources consulting firm. Phone +263 4 481946-48/481950 or email: nyasha@ipcconsultants.com or visit our website at www.ipcconsultants.com


Nyasha Ziwewe
This article was written by Nyasha a Guest at Industrial Psychology Consultants (Pvt) Ltd

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