As the name suggests, a highly competitive market is possible in the presence of a large number of buyers. Due to the presence of a large number of players, none of them has a clear control or controlling stake either on the market or on the price (Malcolm C. Sawyer, 1985). However, the competitive market operates on the basis of a number of key influential factors, which will be used to explain the case of the store under analysis.
A highly competitive market means that each of the suppliers holds an insignificant share in the market, which means that the firm is small in comparison to the size of the overall market that comprises all the suppliers in the sector. As such, the influence of a single supplier on the market price is negligible and the quantity that each produces depends directly on the level of demand from consumers. The price that the firm sets therefore depends on this demand, due to which a supplier will be known as a ‘price taker’. Another factor that makes the market highly competitive arises from the identical nature and quality of the products manufactured by every supplier, which leaves the customer with very little choice to choose between the individual suppliers and brands. Thus, a high substitution of products is another major factor that contributes to the lack of governance on the price (Pass, Bryan Lowes, 1994).
The consumer is well informed on the prevailing prices in the market and the producers cannot modify the price above the market price as the higher price combine with the availability of identical products from other suppliers for cheaper prices will encourage the customer to consider other providers thereby bringing the substitution effect once again into play. Suppliers have equal opportunities in terms of access to resources and labor in addition to technological improvements. Thus, improvement in production capabilities by one firm can have a spillover effect on the other competitors and require them to make similar