Businesses focus on getting more customers, especially loyal customers. Market competition arises when more than one company offers similar goods or services. Such competition is called multimarket competition. Specifically, such competition isn’t limited to one product or service when both (or more) firms operate in different markets and geographical locations.
The multimarket competition theory demonstrates that if such competition doesn’t exist and businesses give into mutual forbearance, the product quality cannot be effectively improved. An epitome of such competition is the constant competition between Samsung and Apple. Both these tech giants try to oust each other by introducing new products frequently.
Did you know that Netflix has 222 million subscribers, whereas its competition Amazon Prime Video has 200 million subscribers?
Such competition is like a double-edged sword that can benefit a company or put it at a disadvantage. Hence many companies turn to mutual forbearance. But what does it mean? This blog will discuss it further and the apparent reasons for such competition. In addition to that, we’ll discuss some real-life examples of multimarket competition.
There are many reasons for such competitions to arise. But, according to the first-ever paper published on multimarket analysis by Corwin Edwards (economist), the main reason is the fear of retaliation. Multimarket competition isn’t just a cause-effect scenario, but firms even plan their sales, marketing and financial strategies based on their competitor’s moves.
Here are the reasons why multimarket competition occurs:
A few firms holding large amounts of market shares and hence keeping out new competitors is called an oligopolistic market. Businesses thrive to achieve the same, and the multimarket competition goes beyond just product sales and marketing their products.
As a user, you must've witnessed this, a certain company releases a new product, and then the same design/feature is replicated by other companies. Businesses do this to follow the market trends and develop a competitive advantage over their competitors.
Few companies own the major shares, as we talked about in the oligopolistic market. This is also a form of a business strategy used by various companies. Business alternatingly lowers their prices in different markets to escalate competition and gain market share.
The area of interest and the business's position in the market also influence their competitive strategies. We'll refer to the same example we used above in this multimarket analysis. Tech giants Apple and Samsung are the most popular in the world. Both companies are competing neck-to-neck when it comes to phones, but Samsung has established itself in the home appliance market as well.
When a big company that owns the major market shares faces a major drop in their share prices, then other small to large firms in the business environment face consequences as well. Such events also affect the multimarket competition among firms to develop across market strategies.
Perfect competition is a hypothetical market structure. In such business models, there's no monopoly, and businesses can't change the price of their products.
Businesses often develop mutual forbearance, a strategic retreat from some markets for harmonious conduct or losing in a competition. Such competition can arise among firms at different levels, but consumers get good quality products as long as they are competing. We saw multimarket analysis examples of strategic competition. Let's move on to why such competition is necessary for a firm's productivity?
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Businesses compete to capture customers' attention with low prices, better quality products, and innovative product features. Through effective competition, the market articulates parameters - the standard market prices and the profit per cent they can earn - concerning the goods and services that the user buys.
Good quality products at efficient prices are exactly what consumers want, businesses ensuring the same stay afloat while others sink or struggle to swim. Government bodies develop competition policies, and all businesses - big or small - must abide by them. Other reasons that describe how productivity is related to competition are:
The employees at a certain firm are required/motivated to work harder to beat their competition and thrive to become the best in class. Hence, productivity increases due to a sense of discipline instilled to surpass the competition.
To maintain high market share prices, businesses produce more goods to make them available to wider users. Such actions are also effective in escalating competition in the market. Hence, multimarket analysis examples of productivity increase are to get an edge over the competition.
As discussed above in this multimarket analysis, businesses innovate in their pursuit to become more advanced than their competitors. Hence users get new and improved products due to multimarket competition.
Samsung owns 27.94% of the market shares, and Apple owns 27.68, making Samsung the current #1 phone brand globally.
When the competition in the market is strong, businesses are able to sustain for longer periods of time than dissolve with the changing trends. Businesses focus more and more on increasing their productivity to ensure that their market share price status is high. Competition is somewhat necessary not just for user's profit but also for businesses to improve over time and develop a firm foundation in the market.
Businesses that offer similar products or services are direct competitors in the market. Their target audience is also the same, so they strategise to gain a loyal customer. The top three examples of a firm competing in different markets are:
Agriculture, foreign trade, and online shopping are among the most competitive markets in the economy as the prices of goods and services change frequently. -Boycewire
Various business experts have proven that multimarket contact among business rivals leads to strategic responses. Businesses make multiple strategies to beat the competition and hence develop over time. Also, users get better availability and quality of products. So we can conclude that, in hindsight, multimarket competition is a necessary evil that leads to better business models and more satisfied customers.
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