Define competition and its types.

Competition is commonly referred to the rivalry that exists between firms for selling their products of a particular category to the same segment of customers. However it may be defined more generally as rivalry between individuals and firms to gain greater advantage or superiority over each other.

Competition may be classified according to many different perspectives. The most common perspective of classifying competition is the economics perspective. As per this competition is divided in two broad types - perfect competition and imperfect competition. Perfect competition exists when no one firm or consumer in the market is large enough to affect the market price. This is really an ideal type of completion which does not exist in reality. However many markets may be quite close to perfect competition.

Imperfect competition exist when at least one seller or buyer in the market is large enough to affect the market price. The impure competition may be further classified in different types like monopolistic, oligopolistic and monopsony markets according to number of dominant sellers or buyers in the market.

Another popular way of classifying competition is as per the five force model of Porter, which identifies the following five sources of competition faced by a firm.

1. Rival firms in direct competition for the company's product.


2. Firms marketing substitute products.


3. Firms that are currently not competitors but may enter the industry attracted by its high profitability, and therefore may offer competition in future.


4. Supplies to the company. They also compete with the firms in the sense that they try to increase their profit by charging highest possible prices for the products supplied by them.


5. Customer of the company. They also compete with the firms in the sense that they try to get maximum products and services from the company at lowest cost.