IGCSE Economics Notes

Competitive markets have many firms with no market power to influence market demand and supply.

Price taker: Firms can’t set their own prices, they follow the market demand and supply.

Quality: Some firms sell identical products, they don’t compete on quality

Choice: Some firms sell different products, they use branding, design, slogans to stand out

Profit: Buyers and sellers know the product and prices well, firms have low profits due to many rivals

Competition is good for consumers because they get:

• Higher-quality products

• Good customer service

• Greater choice

• Higher output

• More competitive prices

Additional costs: Firms may have to spend more on advertising, marketing, research and development, and customer service to differentiate their products and gain an edge over their rivals 

Smaller share of the market: When there are many firms in the industry, each firm has a smaller percentage of the total market demand, which limits their growth potential

Confused consumers: When there are many firms offering similar or different products, consumers may have a hard time comparing and choosing the best option for them 

Decreased profit margins: When firms face price competition and additional costs, their profit margins per unit sold may decrease, which can affect their profitability and sustainability