Competition has many meanings depending on the context in which the term is used. Almost all American businesspeople will say their market is highly competitive. Such business owners are concerned with both the actions of current competitors and the threats of potential competitors. Companies often develop competitive strategies to differentiate themselves from other firms in their competitive environment. In this context, competition refers to the marketing strategies, product, pricing, distribution, or promotion strategies a firm uses to distinguish its offerings from competitors’ offerings. A competitive environment is influenced by the actions of direct competitors, marketers of products that are substitutes for one another, and other marketers competing for the same consumers’ purchasing power. Sales managers use competition to motivate employees. In this context, competition is directed toward achieving a goal or measuring performance against other employees in the company. Sometimes sales managers will implement competitive PRICING STRATEGIES—that is, strategies designed to neutralize price as a competitive variable. A price-matching policy is one form of competitive pricing strategy. The most common kind of competition is economic or market competition. This can range from a MONOPOLY, a market with only one seller, BARRIERS TO ENTRY, and no close substitutes; to PERFECT COMPETITION, a market with many sellers of similar products and ease of entry into the market. A market where there are many sellers of differentiated products is called MONOPOLISTIC COMPETITION. Perfectly competitive markets have the greatest degree of competition, while monopolistic markets have the least competition. Business managers also use the term nonprice competition— that is, competing with other firms based on style, service, quality, availability, credit, or anything other than price. Nonprice competition is prevalent in markets where there are only a few firms (OLIGOPOLY).
See also MARKETING STRATEGY.