Competition

1
Topic 2

• Competition

2
Setting the scene competition in the cinema
market

• In 2005, Vue Entertainment Holdings (UK) Ltd was
  the third largest operator of cinemas in the UK.
  On 29 April 2005, it acquired the Ster Century
  (UK) Limited chain of cinemas. Star, prior to
  being acquired by Vue, owned and operated
  multiplex cinemas at Basingstoke, Cardiff,
  Edinburgh, Leeds, Norwich and Romford.

3

• Vue already operated a multiplex cinema at
  Basingstoke, and the acquisition of Ster now
  meant that Vue owned two multiplex cinemas at
  Basingstoke. These cinemas are located 1.5 miles
  apart.
• On 23 September 2005, the Office of Fair Trading
  referred Vues acquisition of Ster to the
  Competition Commission. This is the government
  organisation that carries out investigations into
  mergers and other anti-competitive business
  practices which might be against the interests of
  consumers. On the 24th February 2006, the
  Competition Commission made a ruling on the case.

4

• The Competition Commission ruled that Vues
  acquisition of the cinema in Basingstoke led to
  higher prices. Why did it reach this view?
• Why do you think the CC ruled that Vue should
  sell one of its Basingstoke cinemas to a cinema
  operator with the resources, expertise, incentive
  and business plan to operate it as a multiplex
  cinema showing mainstream films?

5
Degrees of competition

• An important feature of the particular markets in
  which a business operates is the degree of
  competition it faces from rival enterprises.
  Marketing planners need to be aware of the
  competition facing their business, and design
  marketing activities that they believe will give
  their businesses a competitive advantage.
• The level of competition faced by a business is
  determined by several factors, including
• the number of businesses in the market, that is
  the number of direct rivals
• the attitudes and values of decision-makers in
  competitor businesses
• the nature of the product being sold and the
  size of the market

6
The types of market are

• 1. Monopoly a market with one seller.
  However, a business with a market share in excess
  of 25 is often referred to as having monopoly
  power. Governments have recognised the
  potential dangers of monopoly situations
  consumers get a raw deal, and there is little
  competitive pressure to force the dominant
  business to become more efficient or to be
  innovative. All market economies have laws and
  regulations to prevent monopolies or
  near-monopoly situations arising. If a
  near-monopoly situation exists, the market is
  usually regulated by a government agency to
  protect consumer interests and to ensure that
  businesses do not abuse their position.

7

• Oligopoly . Is a market in which there are
  usually a few large dominant businesses. There
  may also be smaller businesses, but it is the
  presence and behaviour of the few large
  businesses which attract the attention and shape
  the competitive landscape. There are many
  examples of oligopolistic markets in the UK,
  including motor vehicle manufacturing, food and
  household supplies (dominated by supermarkets)
  and banking.
• The behaviour of businesses in oligopoly is
  unpredictable. Even if there are only two
  businesses in the industry, competition may be
  fierce. However, there is a widely held view
  that businesses in oligopolistic markets tend to
  avoid competition, especially on price. A key
  feature of oligopoly markets is interdependence.
  Each business in the oligopolistic market knows
  that its actions will affect the others and that
  it can expect a reaction to any decision it
  makes.
• Insert some information here on how companies use
  product differentiation and advertising in an
  oligopolistic market

8

• Perfect competition is the complete opposite
  of a monopoly. In a perfectly competitive
  market, there are many businesses competing to
  supply goods to numerous consumers. Intense
  competition drives prices down to a minimum, and
  there would be no customer loyalty, as all
  products would be identical and consumers would
  know and would always shop with the business
  that offers the best that is, the lowest price.
• Insert some information/examples here about
  Perfect competition markets.

9

• Monopolistic competition .. Has much more in
  common with perfect competition than it does with
  a monopoly. The only difference between perfect
  competition and monopolistic competition relates
  to the nature of the product or service supplied.
• Insert some information here about examples of
  monopolistic markets, and how the size of the
  market is characterised in this type of market.

10
Stop and think p108

• In recent years, some new companies such as
  Hyundai and Kia have entered the UK car market.
  How might the arrival of new competitors affect
  the marketing mix of businesses in an
  oligopolistic market such as the car market.

11
Stop and think p109

• Identify the type of market/degree of competition
  for the following types of business
• Window cleaners ?
• Convenience stores ?
• Broadband internet service ?
• Fast Food ?
• Book retailers ?
• New housing developments ?
• Rented accommodation ?