Competition

Competition refers to the group of businesses operating within a given market and geographical area that provide products or services aimed at fulfilling the same end-customer needs.

Products or services don’t necessarily have to be physically identical to be considered competitors; what truly matters is their ability to satisfy the same underlying customer need. Generally, however, competing firms belong to the same industry and offer products that are similar or interchangeable in the eyes of consumers.

The interplay between a business and its competitors is what drives market dynamics. Companies closely track their rivals’ moves - pricing strategies, product features, marketing campaigns, and more - through competitive analysis before shaping their own marketing strategies.

The intensity of competition within a market is often measured by the concentration ratio (sometimes called market crowding). The level of competition largely depends on the barriers to entry that either deter or enable new competitors (newcomers) from entering the market. As a result, markets can exhibit varying degrees of competitive pressure. For example, a market is considered perfectly competitive when a vast number of firms operate without any single player exerting significant influence.

Perfect competition describes a market structure characterized by the presence of countless economic participants. In perfect competition, each individual firm represents an insignificantly small portion of the total supply and has no power to influence prices, which are determined entirely by market forces. Businesses in such a market are known as “price takers.”

A market with no competition is called a monopoly, where a single firm dominates. When only a handful of firms share the market, the structure is known as an oligopoly.