Competitors

What Defines a Competitor?
A: A substitute is one that embodies
1) Similar performance characteristics: Not Toyota and Mercedes
2) Similar ocassion of use: Not OJ vs Beer?
3) Sold in the same geographic region: Cement can't be easily moved
B: A good substitute is measured by its cross price elasticity of demand

There are 1) Direct Competitors -where the performance of one firm affects the other and 2) Indirect Competitors - Where one causes a chance in performance due to a third firm

Steps for Identifying Competitor
1) Find out where customers are coming from
2) Where do your customers shop? - Be wary of technology and virtual competitors

The Market Structure
1) Monopoly
2) Monopolistic Competition
3)Oligopoly
4) Perfect Competition

For Profits to be driven to 0,
-There are many sellers
-Customers perceive the product as homogenous
-Excess Capacity

An important determinant of demand is customer switching, and switching is less likely when
-customers are not well informed
-customers face high transportation cost
-preferences are idiosyncratic