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Competitive Market Examples

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11 Examples of a Competitive Market

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A competitive market is a venue for value exchange that has many participants whereby no single participant controls the market. Competitive markets are important because they give strong incentives for efficiency and improvement. The following are illustrative examples of a competitive market.

Commodities

Commodities are products and services where consumers see no difference between producers. This means that brands and quality improvements have little influence on consumers such that all producers must accept a market price. Commodity markets are extremely efficient whereby you must produce at a reasonably low cost and standard level of quality to participate as a producer.

Fast Moving Consumer Goods

Fast moving consumer goods are products that are quickly used and repurchased. In this market, consumers need to make many decisions quickly such that they will strongly rely on brand recognition and brand awareness to make purchases. As such, large firms with dominant brands and big advertising spends dominate in this market. For example, the market for soft drinks, packaged food and toiletries.

Luxury Goods

Luxury goods are superior goods that build up significant customer motivation with elements such as high quality, social status, style and image. This is difficult to do and requires things like advertising spend, association with high status individuals and product designers who know what a market desires. For example, a luxury brand of chocolates that is associated with a well known chocolatier and status such as posh locations. High prices, small portions, luxurious packaging and quality may also drive a sense of luxury status and customer experience.

Labor

Labor is a competitive market whereby people gain valuable knowledge, talent, skills, experience, relationships and reputation in order to compete for desirable positions. Likewise, firms offer salaries, office locations, social status and an interesting mission to compete for talent. If labor weren't a competitive market, people would have little or no incentive to learn, improve and deliver results. Likewise, firms would have no incentive to provide good working conditions and salaries.

Financial Markets

Financial markets such as a stock market whereby a large number of buyers compete to buy and sell capital such as shares in the future earnings of firms. This ends up funding firms that have done well to produce value while restricting funding to firms that are destroying value. In other words, competitive financial markets efficiently allocate capital to its most productive or highest potential uses. For example, a high performing firm with a high stock price can easily raise money by issuing more stock.

Foreign Direct Investment

Countries compete for investment on a global basis. This is known as foreign direct investment. For example, a nation may offer poor environmental and labor protection to attract global manufacturing investments. This situation is known as a race to the bottom. Competition for foreign direct investment also gives nations positive incentives in areas such as education, infrastructure and quality of life whereby they may be able to attract the headquarters of firms and other high value facilities such as research & development sites.

Economic Bads

An economic bad is a negative result of the production and use of economic goods. These can be capped at some sustainable level and then the right to produce this economic bad can be traded on a market. For example, the harvest of a non-renewable resource such as a species of fish can be capped and the licenses to do so traded on an open market. This could help prevent damage to people and planet.

Universities

Many non-financial human activities also resemble markets. For example, universities compete to attract talented students that will provide the institution with research prowess and status. This all translates to money for the institution such as grants and donations.

Counter Examples


The following are examples of markets that aren't competitive.

Communism

In a communist society, the government owns all capital and must therefore decide what to produce and at what price. This eliminates competitive markets with a system of bureaucratic control. Historically, this has produced shortages, surpluses, low quality goods, famine and low quality of life†.

Monopolies

A monopoly is where a single firm dominates a product or service category such that consumers have little real choice. This allows the firm to impose unfair terms, high prices or low quality as buyers have no power. Monopolies may also engage in anti-competitive practices to prevent competition. Alternatively, they may simply buy all firms with a chance to compete in order to extinguish competitive threats.

Captive Market

A captive market is a situation where a firm has a local or situational monopoly because customers have no choice. For example, a building that is only connected to one internet service provider. This tends to produce high prices, inefficiency, decline and poor service.

Competitive Market

This is the complete list of articles we have written about competitive market.
Analogy
Brand Image
Commodities
Consumer Market
Demand
Efficiency
Free Market
Goods
Market Price
Markets
Mr Market
Supply
Value
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References

† Wemheuer, Felix. "Collectivization and famine." The Oxford Handbook of the History of Communism. 2014.

Markets

A definition of markets with examples.

Democratic Socialism

The definition of democratic socialism with examples.

Service Markets

An overview of the service market with a list of examples.

Scarcity Examples

An overview of scarcity with examples.

Capitalism Pros Cons

An overview of the capitalism with a list of pros and cons.

Market Change

An overview of market change.

Consumer Market

An overview of the consumer market with examples.

Market Goods

An overview of market goods with examples and counterexamples.

Economics

Everyday examples of economics.

Industrial Economy

The definition of industrial economy with examples.

Economic Factors

A list of common economic factors.

Factor Markets

An overview of the factor market.

Economic Issues

A list of common economic issues.

Economic Goods

The common types of economic good with examples of each.

Economic Opportunity

A list of common economic opportunities.

GDP

An overview of what GDP includes with examples.

Metal Examples

A list of metallic elements, base metals, precious metals and rare-earth metals.
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