• price competition,
• advertising battles,
• sales promotion campaigns,
• introducing new products for the market,
• improving after sales service or
• providing guarantees or warranties.
Competition can stimulate demand, expanding the market or it can leave demand unchanged, in which case individual competitors wil make less money, unless they are able to cut costs.
Factors determining the intensity of competition:
(a) Market growth. Rivalry is intensified when firms are competing for a greater market share in a total market where growth is slow or stagnant.
(b) Cost structure. High fixed costs are a temptation to compete on price, as in the short run any contribution from sales is better than none at all. A perishable product produces the same effect.
(c) Switching. Suppliers will compete if buyers switch easily (eg Coke vs Pepsi)
(d) Capacity. A supplier might need to achieve a substantial increase in output capacity, in order to obtain reductions in unit costs.
(e) Uncertainty. When one firm is not sure what another is up to, there is tendency to respond to the uncertainty by formulating a more competitive strategy.
(f) Strategic importance. If success is a prime strategic objective, firms will be likely to act very competitively to meet their targets.
(g) Exit barriers make it difficult for an existing supplier to leave the industry. These can take many forms:
a. Fixed assets with a low break-up value (eg there may be no other use for them, or they may be too old)
b. The cost of redundancy payments to employees.
c. If the firm is a division or subsidiary of a large enterprise, the effect of withdrawal on the other operations within the group.
d. The reluctance of managers to admit defeat, their loyalty to employees and their fear for their own job.
e. Government pressures on major employers not to shut down operations, especially when competition comes from foreign producers rather than other domestic producers.
(source: BPP Learning Media)
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