3.02 Explain the concept of competition

3.02 Explain the concept of

competition.

Competition The rivalry between two or more

businesses to gain as much of the total market sales or customer acceptance as possible.

Competition continued . . .

Helps to maintain reasonable prices, provides consumers with new and improved products, and results in a wide selection of products from which to choose.

Forces businesses to operate efficiently.

Types of competition

1. Direct competition2. Indirect competition3. Price competition4. Non-price competition5. Monopolies

Direct competition

Involves two or more companies that utilize the same type of business format.

Example Coke and Pepsi

Indirect competition Between two or

more retailers that employ different types of business formats to sell the same type of goods.

Example: Playing Putt-Putt versus an 18 hole golf course.

Price Competition Focuses on the

selling price of a product.

Preferring to buy the products that are the lowest in price.

Purchasing clubs at Wal-Mart versus a golf specialty store.

Non-price competition Based on factors

not related to price.

Includes: quality of products, customer services, business location and qualifications of salespeople.

Monopolies Exist when one company has

exclusive control over a product or the means of producing it.

The free enterprise system prohibits monopolies except when it is wasteful to have more than one company.

Ex. There is only one football team per area.

Profit The money earned from conducting

business after all costs and expenses have been paid.

Profit for most businesses is 1-5% of sales.

95-99% of the selling price goes to pay costs, expenses and business taxes.

Loss A decrease in a potential profit. Potential for loss or failure. Risk Management – how to

effectively manage losses due to risk.

Sources of revenue

1. Admission2. Food and beverage sales3. Parking4. Merchandise sales5. Sponsorships6. Naming rights

Sources of expenditures

1. Performer fees2. Rental or leasing of facilities3. Advertising4. Incentives or in-game promotions5. Food and beverage services6. Security staff