Competition

Competition is an essential component of markets. It takes place wherever there are multiple businesses offering similar products and services as they compete to get to grasp customers, profits and market shares before (or in some cases from) their competition.

Methods of competitions differ but basically depend on differentiating the offer for the best combination of price, quality, and service. Usually the result benefits of the customer who gets better quality at cheaper prices, so competition plays a regulatory role in balancing demand and supply.

Direct vs. indirect competition

Competition can be considered in direct and indirect scenarios. Here's the meaning and difference of the two:

1. Direct competition: When competing businesses sell the same product/service in the same market and for the same target customer.
   Example: when a customer is thirsty and wants to buy water, he/she has the option to buy a brand from 3 or 4 different brands of water bottles. Companies producing these water bottles are in direct competition.


2. Indirect competition: When competing businesses sell products and services that satisfy a certain need in a wider circle- specialization. Here, competition is not directly relevant to the same target market or audience, but it influces them.
   Example: when a customer is thirsty he/she have the option to buy water, juice, soda. companies producing these products are in indirect competition.

Levels of competition

Competition can come in many shapes and forms, some more ethical and sustainable than others. It usually starts when the business is new and has a limited competing power, and grows in power as the business gains more edge in the market. Here are the main levels of competition from the most extreme to the less powerful:

Monopoly

A monopoly happens when there is a sole producer (or service provider) in the market for a certain good or service with no considerable substitute. Ethics-wise, this level has some variations:

• If the entrepreneur has an original product or service with a significant competitive advantage in the market and this entrepreneur is first to market, then this is called a Defacto Monopoly. Here, the entrepreneur does control the market and demand until a proper alternative arises, then this will no longer be a monopoly and will become a standard market competition.. This is considered an ethical and normal business practice.
• On the other hand, If the business has an edge in the market but competitors are not able to provide suitable alternative due to a law or government intervention, then we have a Statutory Monopoly. Here, the government issues laws to protect the business from competition. This type is sometimes used by governments to protect local fragile produce and small businesses, otherwise it is not ethical.
• Lastly we have unethical monopoly. Here, a business acts a distributor or reseller of certain goods or services, and this business keeps these goods stored until they are scarce in the market to up the asked price. This is often forbidden by the law, but that doesn't stop it from happening in fragile markets and tough times.

Oligopoly

Oligopoly happens when there are a few producers or service providers of a good or service. Here, oligopolists don't have as much power as monopolists, they can join forces to control the market and up their prices together without proper government regulations to protect small competitors.

Monopolistic Competition

In a healthy market system, businesses want to differentiate their offerings and have an edge in the market. In this level of competition we have multiple competitors, each sufficiently differentiated from the others and have their own considerable market share and target market. While each of these competitors may aspire to monopolize the market, their competition keeps the products and services provided at a high standard for the benefit of the customer and the industry as a whole. This is the healthiest stage to be in for the economy and the customer.

Low Competitiveness

When a business starts off, it usually has a low competitiveness power in the market as it is still established and unknown to many of the prospective buyers. This happens also in markets where there are so many competitors that gaining any significant market share is not really possible. The focus for businesses and startups in this level should be to differentiate and grow their competitive advantage. Focusing on the niches here may be the most reasonable and easier approach to survive and thrive.