Tuesday, November 2, 2010

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.

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