What is Competitiveness?
Competitiveness is the ability of a business to deliver better value to customers than competitors.
If a business is able to be more competitive than the rest of the market or industry over a sustained period, it is said to have a competitive advantage:
- The ability of a business to add more value for its customers than its rivals and attain a position of relative advantage
- A situation where a business has an advantage over its competitors by being able to offer better value, quality and/or service
Competition and Market Structure
The nature of competition in a market is determined by a variety of factors, including:
- The extent of the current competition
- The potential for new businesses to enter the market
- The extent to which a business produces a similar product (indistinct from rivals) or a differentiated product (distinct from rivals)
The threat of new businesses entering a market is a particularly important factor influencing the extent of competitive rivalry:
- High profits will tempt newcomers to enter a market and this will drive down prices and profits
- Therefore the maintenance of market power depends upon erecting and maintaining barriers to market entry
Barriers to Market Entry
What can existing competitors in a market do to dissuade new businesses from trying to enter a market?
- Product differentiation (including brands)
- Will act to increase customer loyalty making it difficult for newcomers to gain market share
- Control access to raw materials and distribution channels
- A lack of access will make it difficult for newcomers to enter the market
- Retaliation by established products
- – E.g. the threat of price war
- Will act to discourage newcomers