BUS 010 Lecture Notes - Lecture 6: Moe Williams
Document Summary
The number and size distribution of firms competing within a market contributes to rivalry. The extent to which a group of firms can avoid price competition in favour of collusive pricing practices depends on how similar they are in their origins, objectives, costs, and strategies. The more similar the offerings, the more willing customers are to switch between firms. Commodity industries are often plagued by price wars and low profits. Unused capacity encourages firms to offer price cuts. Barriers to exit are costs associated with capacity leaving an industry. Cost conditions: scale economies & the ratio of fixed to variable costs. Where fixed costs are high relative to variable costs, firms will take on marginal business at any price that covers variable price. Scale economies may also encourage companies to compete aggressively on price in order to gain the cost benefits of greater volume. Bargaining power of buyers: purchase raw materials, components, and financial and labour services.
