Prior to this lesson, you should be familiar with the following concepts: business, goods & service, 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.
You will understand marketplace competition, discuss how businesses compete, and predict how the opening of a second pizza shop in a small town might affect prices, profits, service, and quality.
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 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 and to tell about any incentives, sales, lower prices, 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?
How will this affect pizza lovers in Smalltown?
What will happen to pizza prices?
- How will the two shops compete?
Click here to play Pizza! Activity
Using your worksheets and Pizza! charts have a class discussion addressing issues of competition in the market place. After the discussion answer the following questions:
1. What does competition in the marketplace mean?
2. How do businesses compete with each other?
3. Does competition help the consumer? How?
4. Is there ever a time when competition does not help the consumer? When? How?
5. What are the possible effects of the second pizza shop opening?
6. What do you predict will happen if a third or fourth pizza shop opens in Smalltown?