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