Competitive Markets (Edexcel IGCSE Economics)

What is Competition?

• Competition refers to the number of firms that sell similar products in the same industry

• The more competitive an industry is, the harder firms must work to keep their customers and to attempt to attract customers away from competitors

• Highly competitive markets can generate advantages for customers

• Competition between firms can be useful to generate improvements in the standard of living in an economy

  Advantages and Disadvantages of Competitive Markets for Firms

  Advantages	Disadvantages
  Efficiency: increased competition incentivises firms to lower cost of production Less waste: firms are likely to minimise waste in order to keep costs low Better quality: firms continuously seek to improve the quality of their goods/services in order to become recognised in a crowded market Innovation: firms will research and develop new products to attract new customers	Poor quality: in a bid to lower prices, product quality may deteriorate over time as firms cut costs or use cheaper raw materials Worker welfare: low profit margins may result in low wages and poor working environments for workers

  Advantages and Disadvantages of Competitive Markets for Consumers

  Advantages	Disadvantages
  More choice: more sellers means more choice for consumers Better quality products: consumers will benefit from firms striving to improve their quality Innovation: consumers can enjoy improved versions and brand new products Lower prices: competition causes firms to lower prices for consumers in an attempt to gain market share	Poor quality output: consumers may find products deteriorate in quality with repeat purchases Too much choice: consumers may be overwhelmed and not explore the full range of market offerings, instead sticking to what they know Low wages: consumers may find many jobs offer only low wages to workers

  Advantages and Disadvantages of Competitive Markets for the Economy

  Advantages	Disadvantages
  Efficiency: increased efficiency by firms reduces the use of scarce resources and reduces waste Innovation: over time, the improved goods and services offered in markets will increase the standard of living	Low levels of innovation: too much competition reduces profit levels and stifles innovation and economic progress Low profit levels: small profit margins may lead to poor quality jobs and low welfare standards for labour