How small firms compete

Level: AS Levels, A Level, GCSE – Exam Boards: Edexcel, AQA, OCR, WJEC, IB, Eduqas – Economics Revision Notes

In Competitive Markets

• Product Differentiation and Unique Selling Point – this allows small firms to edge out in the market
• Competitive Advantage – they can achieve competitive advantage through relationships with their stakeholders
• Economies of Scale – if small firms can benefit from economies of scale, they will have lower costs of production and greater efficiency
• Diseconomies of Scale – larger firms are likely to have more diseconomies of scale if there is poor management, problems with coordination and communication. This will result in higher costs and x-inefficiency, potentially leading to higher wages
• Small firms as Monopolists – small firms may create a niche market where they can charge higher prices due to the inelastic demand their goods / services possess. Small firms also have a small degree of monopoly power since they provide a more personal and local service

Quick Fire Quiz – Knowledge Check

1. Identify and explain five ways small firms can compete in competitive markets (15 marks)

Next Revision Topics

• Business Growth
• Business Objectives
• Research & Development and Innovation
• How the Digital Economy affects markets and firms

A Level Economics Past Papers

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