Competition

What is Demand?

What is Demand? Jonathan Poland Jonathan Poland //www.jonathanpoland.com/wp-content/uploads/2023/01/jp-logo.png December 20, 2022 December 20, 2022

Demand refers to the quantity of a particular good, asset, or other value that market participants are willing and able to purchase at a given price level over a specific time period. It represents the desire and ability of consumers or investors to acquire a product or asset, and it is typically influenced by a variety of factors, such as the price of the item, the income of the potential buyers, the perceived value or utility of the item, and the availability of substitutes. The relationship between demand and price is often depicted in a demand curve, which shows how the quantity of a good or asset that consumers are willing to buy changes as the price changes.

Law of Demand

The law of demand is a fundamental principle of economics that states that, in general, there is an inverse relationship between the price of a good or service and the quantity of it that people are willing to buy. This means that as the price of a good or service increases, the quantity of it that consumers are willing to purchase tends to decrease, and as the price decreases, the quantity that consumers are willing to purchase tends to increase. This relationship is often depicted graphically in a demand curve, which shows the relationship between price and quantity demanded. The law of demand is an important concept in economics because it helps to explain and predict how changes in price can affect the quantity of a good or service that consumers are willing to buy.

Equilibrium

The demand curve is a graphical representation of the relationship between the price of a good or service and the quantity of it that consumers are willing and able to purchase at that price. It is typically plotted on a graph with the price on the y-axis and the quantity on the x-axis. The demand curve slopes downward, showing that as the price of a good or service increases, the quantity demanded decreases, and as the price decreases, the quantity demanded increases.

The supply curve is another graphical representation that shows the relationship between the price of a good or service and the quantity of it that producers are willing and able to offer for sale at that price. Like the demand curve, the supply curve is plotted on a graph with the price on the y-axis and the quantity on the x-axis. The supply curve slopes upward, indicating that as the price of a good or service increases, the quantity supplied increases, and as the price decreases, the quantity supplied decreases.

The intersection of the demand curve and the supply curve is known as the market equilibrium. At this point, the quantity of the good or service that consumers are willing to buy is equal to the quantity that producers are willing to sell, and the price of the good or service is determined by the intersection of the two curves. If the price falls below the equilibrium price, there will be excess demand, or a shortage, and the price will tend to rise. If the price rises above the equilibrium price, there will be excess supply, or a surplus, and the price will tend to fall. In an efficient market, prices and quantities are in equilibrium. As such, supply and demand curves can be used to model a wide range of economic conditions and theories.

Elasticity

The price elasticity of demand measures the percentage change in the demand for a good or service in response to a one percent change in price. This elasticity is almost always negative, meaning that demand decreases as price increases. When the elasticity is less than 1, demand is considered inelastic. This means that a small change in price will not significantly affect the quantity of the good or service demanded. On the other hand, when the elasticity is greater than 1, demand is considered elastic. In this case, a small change in price will lead to a significant change in the quantity of the good or service demanded. For firms, optimal revenue is achieved at a price where the elasticity is exactly 1. At this point, a price increase will not significantly affect demand and therefore will not reduce revenue. However, if the elasticity is greater than 1, price increases will result in a decrease in demand and therefore a decrease in revenue.

What is a Competitive Market?

What is a Competitive Market? Jonathan Poland Jonathan Poland //www.jonathanpoland.com/wp-content/uploads/2023/01/jp-logo.png December 20, 2022 December 20, 2022

A competitive market is a type of market in which there are numerous buyers and sellers, and in which the prices of goods and services are determined by supply and demand. In a competitive market, individuals and organizations are free to enter and exit the market as they please, and there are no barriers to entry or exit. This means that new competitors can enter the market easily, and existing competitors can exit the market just as easily.

In a competitive market, prices are determined by the forces of supply and demand. If there is a high demand for a particular good or service, and a limited supply of that good or service, the price will tend to be higher. Conversely, if there is a low demand for a particular good or service, and a surplus of that good or service, the price will tend to be lower.

A competitive market is often contrasted with a monopolistic market, in which there is only one seller of a particular good or service. In a monopolistic market, the seller has a great deal of control over the price of the good or service, and may be able to charge a higher price than would be possible in a competitive market.

Overall, a competitive market is one in which prices are determined by the forces of supply and demand, and in which individuals and organizations are free to enter and exit the market as they please. This type of market is considered to be open, fair, and liquid, and is generally seen as a positive force for promoting economic efficiency and innovation.

Market Liquidity

Market liquidity is a term for the trading volumes on a market. Generally speaking, a market with many independent buyers and sellers closing many transactions is more competitive than a market with low trading volume. A competitive market typically has such high trading volumes that a single buyer or seller has little influence over price.

Perfect Competition

Perfect competition is a theoretical type of market that is so efficient that every participant must accept a market price. This means that all goods are commodities such that consumers see no difference between brands. This generally doesn’t happen as many firms work to establish a competitive advantage to stand out in the market such that they don’t need to accept a market price.

Perfect Information

In order to have perfect competition, you need perfect information whereby all market participants have the same set of facts that are relevant to a transaction at a point in time. In reality this rarely happens, for example a seller of a home typically knows much more about the home and neighborhood than the buyer.

Competitive Advantage

Competitive advantage is a capability or asset that allows a firm to stand out in a crowded market. For example, a luxury fashion brand that is able to charge a premium price based in its reputation and brand image.

Efficient Market Hypothesis

The efficient market hypothesis is a theory about the stock market that suggests that it is impossible to beat the market as prices always perfectly reflect the probable future earnings of a firm. This assumes that all buyers and sellers have the same information and level of market access such that nobody has any advantage. According to the efficient market hypothesis, individuals who beat the market are simply examples of random chance. In other words, you can get lucky on markets but you can’t outthink the collective intelligence of an efficient market.

Mr Market

Mr Market is an analogy for the market meant to convey the common observation that the market isn’t efficient. It suggests that the market is a noisy and moody neighbor who offers to sell you his house everyday. The price swings wildly from day to day based on Mr. Markets moods. Sometimes he goes on a prolonged period of irrational exuberance whereby his prices are consistently high. At other times, he is depressed and willing to sell low.

Free Market

A free market is an idealized market where entities trade without government intervention. Prices and quantities are set by supply and demand driven by the self-interested decisions of buyers and sellers. In this idealized market, despite everyone’s self-interested motivations the market works well and efficiently allocates the resources of a nation.

Anti-Competitive Practices

A pure free market doesn’t function very well because there are many ways that market participants small and large can hinder competition to gain an advantage at the expense of everyone else. Generally speaking, a market requires a well designed and regulated system to function efficiently. Most markets are driven by the self-interested motivations of buyers and sellers with a few rules in place to make things run more smoothly.

Market Equilibrium

Market equilibrium is a state of balanced supply and demand. The prices and output quantities of a competitive market are typically close to equilibrium. In a perfectly competitive market, supply always equals demand. As such, there are never shortages or surpluses and prices perfectly reflect the economics of production and value.

Competition

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Competition is a term that refers to the act of engaging in a contest with others in order to determine who is the best at a particular activity or task. Competition can take many forms, including sports, business, and academic endeavors.

In sports, competition refers to the act of competing against other individuals or teams in order to win a game or event. This can range from professional sports leagues, such as the NBA or NFL, to amateur and recreational sports leagues. Competition in sports often involves physical skill, strategy, and teamwork, and can be a great way for individuals to stay active and healthy.

In academic settings, competition can refer to the act of competing against other students in order to achieve the highest grades or performance in a class or program. This can involve studying and preparing for exams, participating in class discussions, and completing assignments to the best of one’s ability. Competition in academia can be a healthy way for students to motivate themselves and push themselves to achieve their full potential.

In business, competition refers to the act of competing against other companies in order to win customers and market share. This can involve a variety of tactics, such as pricing strategies, advertising campaigns, and product development. Competition in business can be intense, as companies strive to outdo one another in order to succeed in the marketplace.

Overall, competition can be a positive force that drives individuals and organizations to strive for excellence and success. It can also, however, lead to negative consequences, such as unhealthy levels of stress or an overly competitive culture that values winning above all else. It is important to find a balance in competition and to remember that the goal should always be personal and collective growth, rather than simply defeating others. The following are basic types of competition.

Price
Price is perhaps the most common form of competition as products that fail to stand out in the market can only compete on price.

Promotion
Ads and other types of promotion that help products to stand out as recognizable, high quality or unique. In many cases, an advertisement does nothing but associate a product with a positive emotion or idea.

Niche
Serving a small market with unique preferences and needs.

Positioning
Developing products that fit a unique slot on the market such as the only black, unsweetened organic coffee beverage on the shelves of convenience stores.

Location
Convenient locations. In some cases, prime locations such as luxury shopping areas also help as they can make a brand seem luxurious.

Sales
Skilled salespeople.

Technology
Superior technology in areas such as products, operations or marketing.

Cost
The ability to produce at the lowest cost. In some industries, cost is the only competitive advantage possible as price is set by the market and customers see no difference between products.

Features
Products with superior features such as an unusually safe car.

Customer Experience
An overall experience that customers prefer such as a restaurant with a pleasant ambiance, tasty food and diligent staff.

Values
Values that customers identify with such as sustainability.

Innovation
Inventive thinking that leaps beyond the current state of the art.

Risk
The ability to navigate risk more successfully than the competition.

Figure Of Merit
Competing on a measurable aspect of a product that customers value such as the efficiency of solar panels.

Time to Market
Being the first to market with an anticipated product or feature.

Sustainability
Products that don’t harm the environment over their full lifecycle.

Distribution
Advantages in getting the product to customers such as strong sales partners.

Customization
Allowing customers to customize products and services.

Reputation
In many industries, reputation is a primary competitive factor. For example, people want investment advice from reputable sources.

Social Status
Social signals such as a fashion designer who has plenty of celebrity friends and clients.

Scarcity
Offering something nobody else can. For example, a railway with a monopoly.

Speed
The ability to execute a service quickly.

Experience
A list of accomplishments such as a consultancy with an established history with major clients.

Scale
The ability to produce at scale generally lowers unit cost and allows a firm to serve large markets and customers.

Scope
Offering a broad range of products that compliment each other in some way.

Art & Design
Intangible qualities that capture the imagination of customers such as aesthetics.

Time & Place
Being in the right place at the right time such as an ice cream vendor at a parade on a hot day.

Impermanence
Producing things that feel once in a lifetime such as music festivals that are never the same twice.

Quality
Products, services and experiences that are superior in the eyes of customers such as a camera that is impossible to break or dessert with a remarkably soft texture.

Relationships
Personal or brand relationships with customers.

Legacy
An interesting history associated with a firm that gives it a strong presence in a market.

Storytelling
Communicating your value in a compelling way using storytelling techniques.

Awareness
Customers tend to prefer products they have heard about and may avoid the unknown.

Vision
A firm that paints an inspiring picture of its future or the future in general.

Competitive Markets

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In a competitive market, multiple participants exchange value without any single entity having control over the market. This type of market is significant because it provides incentives for participants to be efficient and improve their offerings. The following are some common examples.

Commodities

A commodity is a product or service that is perceived as identical by consumers, regardless of the producer. In these markets, brands and quality differences have little impact on consumer behavior, so all producers must accept a market price. Commodity markets are highly efficient, requiring producers to maintain a reasonable level of cost and quality in order to participate.

Fast Moving Consumer Goods

Fast moving consumer goods are products that are quickly used and repurchased. In this market, consumers need to make many decisions quickly such that they will strongly rely on brand recognition and brand awareness to make purchases. As such, large firms with dominant brands and big advertising spends dominate in this market. For example, the market for soft drinks, packaged food and toiletries.

Luxury Goods

Luxury goods are superior goods that build up significant customer motivation with elements such as high quality, social status, style and image. This is difficult to do and requires things like advertising spend, association with high status individuals and product designers who know what a market desires. For example, a luxury brand of chocolates that is associated with a well known chocolatier and status such as posh locations. High prices, small portions, luxurious packaging and quality may also drive a sense of luxury status and customer experience.

Labor

Labor is a competitive market whereby people gain valuable knowledge, talent, skills, experience, relationships and reputation in order to compete for desirable positions. Likewise, firms offer salaries, office locations, social status and an interesting mission to compete for talent. If labor weren’t a competitive market, people would have little or no incentive to learn, improve and deliver results. Likewise, firms would have no incentive to provide good working conditions and salaries.

Financial Markets

Financial markets such as a stock market whereby a large number of buyers compete to buy and sell capital such as shares in the future earnings of firms. This ends up funding firms that have done well to produce value while restricting funding to firms that are destroying value. In other words, competitive financial markets efficiently allocate capital to its most productive or highest potential uses. For example, a high performing firm with a high stock price can easily raise money by issuing more stock.

Foreign Direct Investment

Countries compete for investment on a global basis. This is known as foreign direct investment. For example, a nation may offer poor environmental and labor protection to attract global manufacturing investments. This situation is known as a race to the bottom. Competition for foreign direct investment also gives nations positive incentives in areas such as education, infrastructure and quality of life whereby they may be able to attract the headquarters of firms and other high value facilities such as research & development sites.

Economic Bads

An economic bad is a negative result of the production and use of economic goods. These can be capped at some sustainable level and then the right to produce this economic bad can be traded on a market. For example, the harvest of a non-renewable resource such as a species of fish can be capped and the licenses to do so traded on an open market. This could help prevent damage to people and planet.

Universities

Many non-financial human activities also resemble markets. For example, universities compete to attract talented students that will provide the institution with research prowess and status. This all translates to money for the institution such as grants and donations.

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Competition

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What is a Competitive Market?

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