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10 March, 01:08

What are the main factors that affect the amount of business competition?

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  1. 10 March, 03:34
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    From a microeconomics perspective, competition can be influenced by five basic factors: product features, the number of sellers, barriers to entry, information availability, and location. Each factor hinges on the availability or attractiveness of substitutes and, when no alternatives exist and the company is a single seller of a unique product, a monopoly exists and there is zero competition.

    Explanation:

    Product features essentially describe the level of differentiation. For example, if a company's product is homogeneous (similar to others already on the market), the good or service is completely indistinguishable from products sold by competitors. This situation would imply heavy competition.

    Alternatively, a product might be completely differentiated, meaning that it is unique. If so, there might be few alternatives and thus low levels of competition. The level of differentiation is largely a subjective matter and subject to consumer opinion.

    The number of sellers also impacts competition. If there are many sellers of an undifferentiated product, competition is considered to be high. If there are few sellers, competition is low. If there is a single seller, the market is considered a monopoly.

    Barriers to entry can influence the number of sellers. Market characteristics such as high capital investment requirements or heavy regulation may prevent new companies from entering the market, which in turn provides a level of protection to existing firms. With lower competition through barriers to entry, firms might be able to charge higher prices.
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