This lesson printed from:
Posted May 16, 2003
Author: Cross-Curricular Connections
Posted: May 16, 2003
Updated: January 22, 2007
Students will learn about competition in the market place. They will understand that competition takes place when there are many buyers and sellers of similar products. They will discuss how competition among sellers results in lower costs and prices, higher product quality, and better customer service.
- Understand that competition takes place when there are many buyers and sellers of similar products.
- Identify competing businesses in their community.
- Understand that competition among sellers results in lower prices, higher product quality, and better customer service.
- Explain how the opening of a second pizza shop in a small community affects prices, profits, service, and quality.
Prior to this lesson, the students should be familiar with the following concepts: business, goods and services, economic incentives, and competition.
What is competition in the marketplace? Today we will look at businesses, learn about competition in the marketplace, and see what happens when businesses compete with each other.
Businesses & Customers
Businesses sell goods or provide services. Producers make items to sell or provide services. Sellers sell items or services.
All three words refer to companies that sell items or provide service in order to make money. In this lesson, we will use the word business.
Customers pay for goods and services. Buyers buy goods and services.
All three words refer to people who buy goods and services. In this lesson, we will use the word customer.
What is competition in the marketplace?
Competition among buyers can happen when there is more than one business selling the same or similar item. They are competing for customers. Competition can also happen when there is one business, but many customers competing to get limited goods.
In this lesson, we will talk about competition among businesses. These businesses have to convince customers to buy their items. Customers get to make a choice about where to spend their money. That is competition in the marketplace.
Student Worksheet: Part 1
Business Competitors in Your Community
What are some competing businesses in your community? Click here to print your worksheet.
- Can you name four businesses in your community?
- Can you name a competitor for each business?
- Fill in the first three columns of the chart: Name of Business, Name of Competitor, and Type of Business.
Student Worksheet: Part 2
How Do Businesses Compete?
Businesses compete in many ways. Their goal is to get the customer to choose them. Here are some examples:
Joe sells T-shirts for $5.00 each. Mo sells T-shirts. Maybe Mo will compete by selling his for $4.00. Joe might lower his T-shirt price to match the $4.00 price, or he might go lower. Businesses can compete by lowering prices. But businesses cannot lower them so much that they no longer make enough money to make the shirts, pay their workers, and pay for their store.
Making products that work better, look better, last longer, or do more is one way to compete with other businesses. Prices for an item can be the same or sometimes even higher than the price offered by a competing company, provided that the item is so good that customers will really want it. Businesses can offer a better quality product to get customers to choose them.
Better Customer Service
Businesses can offer better service to their customers. That means hiring and training people who know about the products and know how to be helpful and friendly. A computer store with good customer service hires and trains people who know a lot about computers. A computer store with bad customer service hires anyone and does not train him or her. Then the customers get frustrated when they ask a question and maybe they will shop for a computer somewhere else. Good customer service is one way a business competes and encourages customers to choose them.
Offering incentives is another way to compete. Freebies like toys in happy meals or free soda when you buy a slice of pizza are types of incentives. Offering coupons used to save money and having sales are two more ways to bring in customers. Sometimes businesses have special promotions with refreshments and music encouraging you to come and shop. Some businesses reward customers who shop again and again. Each time a customer shops at a business, the clerk marks a little card for the customer, and when the card is filled up the customer receives a free item. Incentives are another way businesses use to compete and encourage customers to choose them.
Businesses advertise by putting signs up, having TV and radio commercials, and running newspaper ads telling customers about their products. Advertising is used to say how wonderful the products are, to tell about any incentives, sales, lower prices, and to tell customers where the business is located. Advertising is another way in which businesses try to get customers to choose them.
Let's Review the Ways Businesses Can Compete
- Lower prices
- Better products
- Better customer service
- Incentives: freebies, coupons, sales, and special deals
- Advertise to say how wonderful their products are.
How Does Competition Affect the Customer?
Customers are usually better off when there is competition. After all, businesses are trying to get them to choose their products. With competition, customers get to choose how to spend their money. They can look at prices, product quality, customer service, and other incentives before they buy anything.
However, in some cases, with too much competition, maybe companies will only compete by lowering prices and end up lowering them so much that they go out of business or can only offer products of lower quality. This would not be good for the consumer. It would end up giving customers fewer choices when spending their money.
Activity: Smalltown's Pizza!
Now that you have learned how businesses compete, let's see if you can help these businesses. Smalltown is a tiny community. Many people in Smalltown love to eat pizza. Until today, Tony's Pizzeria has been the only pizza shop in town. But there's big news in Smalltown! Today another pizza restaurant is opening. Answer the following questions:
How will this affect Tony's pizzeria?
[Competition from the new pizza restaurant will likely have a negative affect on Tony's business.]
How will this affect pizza lovers in Smalltown?
[Pizza lovers will have a second option for Pizza in Smalltown.]
What will happen to pizza prices?
[Pizza prices will fall as the supply of pizza in Smalltown increases.]
How will the two shops compete?
[The two shops will compete with each other through a process of trial and error, each will try to provide the kind of pizza which consumers want in order to gain their business. ]
Click here to play the Pizza! Activity
Class Discussion (make sure the students have their printed worksheets and Pizza! charts with them).
Think About It and answer the following questions:
What does competition in the marketplace mean? [Businesses that compete for the same customers, sell the same or similar items.]
How do businesses compete with each other? [They may lower their prices, advertise, offer incentives, make a better product, have better customer service.]
Does competition help the consumer? How? [Yes. Competition causes businesses to offer incentives and to attempt to earn their business; customers can get a better selection, lower prices, better service, better products.]
Is there ever a time when competition does not help the consumer? When? How? [Yes. Too much competition could cause a price war, leading to a decrease in the quality of items or customer service. Students may also think of other negative effects.]
What are the possible effects of the second pizza shop opening? [Discuss answers from the flash activity. Have the students share ideas they came up with for having Mo compete with Tony's Pizzeria. Examples might include: prices go down, greater selection in pizza toppings, new items like stuffed crust pizzas, incentives like free soda or free T-shirts, pizza eating contests, wider variety of pizzas offered, better service (like delivery or nicer restaurants), or quicker service. Students may also think of other possibilities.]
- What do you predict will happen if a third or fourth pizza shop opens in Smalltown? [At first, pizza shops might offer better products, prices, or incentives, but if a big price war occurs, prices go down, quality suffers, or not enough customers shop to keep that many shops open, so some businesses may shut down.]
Use the students' Pizza! charts, their worksheets, and their participation in the class discussion to determine whether they can explain how businesses compete with each other and how price, quality, and customer service are affected by competition. Students should have been able to come up with some realistic ways that businesses could compete and still stay in business. If the students suggest exaggerated methods, such as giving away pizza, selling it for a nickel, hot air balloon advertising, or other overly expensive or unrealistic way to compete, ask them whether the return on this huge expense could keep them in business. Can bringing in a few more pizza customers pay for the huge expense of some wild method of competing?
Businesses have to balance the need to compete with the ability to stay open and pay for materials, rent, workers--and still make money for the owners. The costs of competing have to make sense compared to what the expected result will be. You don't give away all free pizza just so more people choose your business, because soon you won't have a business. You don't take out expensive national advertising to promote a small local business. Encourage the students to come up with realistic, reasonable methods of competing in a small, local market. Outrageous suggestions, however, might prompt you to pose the question, when would it be reasonable to use outrageous or expensive competing methods? In what type of business? In which markets?