What Is a Competitive Environment in Business? - Definition, Examples, Advantages & Disadvantages

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  • 0:01 Definition
  • 0:57 Examples
  • 2:14 Advantages and Disadvantages
  • 3:42 Lesson Summary
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Lesson Transcript
Instructor: Kallie Wells
So many markets are flooded with firms, making them extremely competitive. This lesson will provide examples and discuss the pros and cons of being in a competitive business environment.

Competitive Environment: Definition

A competitive environment is the dynamic external system in which a business competes and functions. The more sellers of a similar product or service, the more competitive the environment in which you compete. Look at fast food restaurants - there are so many to choose from; the competition is high. However, if you look at airlines servicing Hawaii, very few actually fly to the islands.

Direct competitors are businesses that are selling the same type of product or service as you. For example, McDonalds is a direct competitor with Burger King. Indirect competitors are businesses that still compete even though they sell a different service or product. The products or services offered by indirect competitors tend to be those that can be substituted for one another. Again, considering travel, you have the option to travel by plane, train, or car. Therefore, airlines are also competing with train lines and buses (assuming the travel does not go overseas).

Examples

There are several examples of competitive business environments. The first that comes to mind is smart phones. How many choices do you have when it comes to buying a smart phone? They seemed to have multiplied overnight! That is an extremely competitive business environment.

Companies are constantly trying to one-up the latest best-selling model - a good indication of a competitive environment. Additionally, prices of comparable smart phone models are relatively close.

Another competitive business environment is the automobile industry. Again, almost every company produces a car in every category. Therefore, when someone is looking at buying a new hybrid sedan or full-size truck, they have so many options to choose from. Obviously, the automobile industry can be segmented in economical and luxury brands, but when comparing within the same segment, there is significant competition.

Lastly, the food industry is extremely competitive. Let's just focus on grocery stores. Have you counted the number of different brands of canned vegetables you can choose from at your neighborhood grocery store? Here again, there are so many companies producing very similar products for consumers to choose from. Now, each one is trying to differentiate their product in one way or another to increase sales, but in general, canned corn is canned corn whether it's from Del Monte or the generic store brand.

Advantages and Disadvantages

Without competition, businesses don't last very long, if at all. There are advantages and disadvantages to having competition. The disadvantages are probably the most pronounced, as no one likes competition!

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