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Competition in Markets

This resource is designed specifically for Unit 29 of the Edexcel BTEC National qualification, 'Business and Markets'.

Aim:

The aim of this resource is to develop your understanding of markets and competition. By the end, you should:

  • Know that in theory perfect competition should exist
  • Understand the three different types of market structure
  • Be able to find examples of each type of market structure and analyse the differences between them
  • Be able to research into oligopoly markets

Resources:

Airbus A380

Activity:

Boeing 747 jet

In a market where a monopoly exists, there is no competition, as the firm is the market. This may be because the market is a natural monopoly, where there are significant savings to be had from having one company running the market. Network Rail, for example, are responsible for the maintenance and upgrading of the rail network of tracks, signals, bridges, stations and so on. See Network Rail(http://www.networkrail.co.uk) for more.

In a duopoly, the market is controlled by two dominant firms. An example of a duopoly is the global aircraft market, where the two dominant firms are Airbus(http://www.airbus.com) and Boeing(http://www.boeing.com/companyoffices/aboutus/flash.html).

The Boeing 747 'jumbo'(left) and the new Airbus A380 (right) - the flagship products of the two dominant firms in the aircraft market. Copyright: Ralph Kiesewetter and Gavin Spencer, both from stock.xchng.

In oligopolies, which are the most common types of market, large firms are involved in selling either identical or very similar products. There are significant barriers to entry into the industry. Where competition does happen, it is usually non-price competition. A helpful resource for further study of oligopolies is Oligopoly Watch(http://www.oligopolywatch.com).

Tasks:

  1. It is believed that having competition amongst firms in natural monopolies is costly and may also jeopardise safety. Why is Network Rail thought to be less likely to have these problems than if there were a number of firms competing against each other?
  2. Use the Colgate-Palmolive profile(http://www.oligopolywatch.com/2003/05/07.html) to find out more about the three major players in the personal and domestic care market. How do they differentiate themselves from each other?
  3. Find the definition of a 'new oligopoly' at Oligopoly Watch. Why does this suggest that multinational companies aren't interested in becoming monopolies?