The dynamics of competition and competitive market processes – AQA Spec

Courses Info

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

Firms may make supernormal profits, which can be can be used for external investment or be reinvested into the company
Dynamic efficiency is likely to occur
Firms can operate at a lower LRAC
Consumers get more variety and better quality goods / services

Allocative Efficiency and Productive Efficiency are likely to occur as firms provide consumers with products they want
Firms are likely to experience lower costs of production due to competitive pressure

Firms can engage in non-price competition to gain market share
Reduce costs – this makes it harder for new firms to compete with existing firms in the market, suggesting there will be productive efficiency and less competition
Improve products – investment into innovation and new technology, or improving the quality of the products means the product will remain competitive in the market
Improve the services offered – in some industries, customer service is the most important focus area of the business; by improving this, they are able to retain customers

Creative destruction leads to the development of new goods / services through innovation and advanced technology
Firms may be incentivised to enter the market if they see firms possessing monopoly power and making supernormal profits
Creative destruction encourages competition in the market
Technological change is influenced by creative destruction

Quick Fire Quiz – Knowledge Check

1. Explain the short run benefits which are likely to arise from competition (4 marks)

2. Explain the long run benefits which are likely to arise from competition (4 marks)

3. Explain the process of Creative Destruction (4 marks)

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