Competitive Markets: Small Firms & Large Firms (Edexcel IGCSE Economics)

Small firms often provide highly customised goods and services, e.g. pet grooming in the customer's home

They often create personal relationships with customers, which helps generate customer loyalty and word-of-mouth advertising

They often provide unique products which are sold in small quantities at high prices; this can be very profitable

Smaller firms can respond quickly to changing market conditions

Small firms are more susceptible to changes in the wider economy, especially during recessions

Fewer financial resources are available to them, including access to larger bank loans - some smaller firms are unable to access any loans at all

It is harder to recruit and retain staff as the wage & non-wage benefits are less competitive than those offered by larger firms

Owners may struggle to take a holiday/sick leave as revenue slows/stops when they stop working

Small firms struggle to generate economies of scale as the volume of output is significantly lower than that of larger firms, resulting in lower profit margins

Increased economies of scale from increased output reduces cost per unit of output. This increases profit

Lower Prices Firms may pass on their cost savings (due to economies of scale) in the form of lower product prices

Large firms may earn greater profits and can use this to invest in research & development to innovative or improve the quality goods and services

When a company grows too large, it may experience diseconomies of scale. It may face challenges in coordinating its various departments, managing its workforce, or maintaining quality control

Rapid growth may result in miscommunication. This may result in delays, errors, missed opportunities and impact on employee morale

A firm can take on more business than it can handle

• E.g. A company that expands too quickly may struggle to hire and train enough staff to handle increased demand, leading to a backlog of orders and dissatisfied customers

Larger firms often earn large profits. This improves the reputation of the company amongst its shareholders or banks

It can make it easier for the firm to access greater finance

Larger firms can take advantage of economies of scale to lower their average costs

With lower costs, firms can leave price levels the same and enjoy higher profits, or they can lower prices and pass on the cost benefits to their customers

Some industries have economies of scale that mean only one firm can operate efficiently - a natural monopoly

Growth provides opportunities for product diversification

Firms are able to increase the number of products that it offer and this reduces risk - if one product fails others may well still be successful

Firms merge or acquire their competitors as they desire stronger market power and fewer competitors

The Walt Disney Company and 21st Century Fox merged in 2018 to gain a higher market value and share (the new company achieved a market share greater than 90%)