Strategies Used by Big Businesses to Eliminate Competition

Introduction

Competition elimination is the process of removing or reducing the number of competitors in an industry. This can be done through a variety of strategies, such as mergers and acquisitions, strategic alliances, price discrimination, economies of scale, cross-subsidization, network effects, and intellectual property protection. In this article, we will explore how these strategies are used by big businesses to eliminate competition.

Mergers and Acquisitions

Mergers and acquisitions (M&A) are one of the most common strategies used by big businesses to eliminate competition. A merger is the combination of two companies into one, while an acquisition is when one company buys another. These strategies are often used to increase market share and reduce costs. According to a study by the Harvard Business Review, “M&As can also be used to eliminate potential competitors and reduce the threat of new entrants into the market.”

M&As have several benefits for big businesses. They can help to reduce costs by eliminating redundant operations and staff, as well as providing access to new markets and customers. Additionally, M&As can help to create a more efficient and competitive company, as well as increase bargaining power in negotiations with suppliers and customers.

One example of a successful M&A was the merger of AT&T and Time Warner in 2018. The combined company created a powerful media and telecommunications giant, which allowed them to offer better services and content to their customers. The merger also reduced competition in the market, as it eliminated one of the largest competitors to AT&T.

Strategic Alliances

Strategic alliances are another strategy used by big businesses to eliminate competition. A strategic alliance is an agreement between two or more companies to cooperate and work together on a project or venture. These alliances can range from informal agreements to formal joint ventures. Strategic alliances are often used to reduce costs, access new markets, and gain access to new technology and resources.

The primary benefit of strategic alliances is that they allow companies to pool their resources and expertise in order to achieve their goals. For example, two companies may form an alliance to develop a new product or service. By combining their resources, the companies can reduce costs and gain access to new technology and markets. Additionally, strategic alliances can be used to reduce competition by creating barriers to entry for potential competitors.

One example of a successful strategic alliance is the partnership between Amazon and Whole Foods. The two companies formed an alliance in 2017, which allowed Amazon to expand its grocery business and Whole Foods to gain access to Amazon’s technology and customer base. The alliance also helped to reduce competition in the grocery market, as it created a strong barrier to entry for potential competitors.

Price Discrimination

Price discrimination is another strategy used by big businesses to eliminate competition. Price discrimination is the practice of charging different prices for the same product or service based on the customer’s ability to pay. This strategy is often used to increase profits and reduce competition. According to a study by the University of Chicago, “price discrimination can be used to limit the entry of new firms into a market and increase the profits of incumbents.”

Price discrimination has several benefits for big businesses. It allows them to increase their profits by charging higher prices to customers who are willing to pay more. Additionally, it can help to reduce competition by making it difficult for new companies to enter the market, as they will not be able to match the lower prices offered by incumbents.

One example of successful price discrimination is Apple’s pricing strategy for its iPhones. Apple charges different prices for its iPhones depending on the customer’s location and purchasing power. This allows Apple to maximize its profits and reduce competition in the smartphone market, as new companies will not be able to match Apple’s prices.

Economies of Scale

Economies of scale is another strategy used by big businesses to eliminate competition. Economies of scale refer to the cost savings that occur when a company increases its production output. Companies that are able to achieve economies of scale are able to produce goods at a lower cost than their competitors, which gives them a competitive advantage.

The main benefit of economies of scale is that it allows companies to produce goods at a lower cost. This allows them to offer lower prices than their competitors, which reduces competition and allows them to capture a larger share of the market. Additionally, economies of scale can also reduce costs by increasing efficiency and allowing companies to take advantage of bulk discounts.

One example of successful economies of scale is Walmart’s supply chain. Walmart is able to achieve economies of scale by buying in bulk and leveraging its size to negotiate better deals with suppliers. This allows Walmart to offer lower prices than its competitors, which helps to reduce competition in the retail market.

Cross-Subsidization

Cross-subsidization is another strategy used by big businesses to eliminate competition. Cross-subsidization is the practice of using profits from one product or service to subsidize another. This strategy is often used to reduce prices for certain products or services in order to make them more attractive to customers and reduce competition.

The main benefit of cross-subsidization is that it allows companies to reduce prices for certain products or services without affecting their overall profitability. This can help to reduce competition, as it makes it difficult for competitors to match the lower prices. Additionally, cross-subsidization can also help to increase market share, as customers may be more likely to purchase the subsidized product or service.

One example of successful cross-subsidization is Amazon’s Prime membership. Amazon uses the profits from its other services, such as Amazon Web Services, to subsidize the cost of its Prime membership. This allows Amazon to offer a low-cost membership to its customers, which reduces competition and helps to increase market share.

Network Effects

Network effects are another strategy used by big businesses to eliminate competition. Network effects occur when the value of a product or service increases as more people use it. This can be seen in social networks, where users are more likely to join if there are already many other users. Network effects can also be used to reduce competition, as it makes it difficult for competitors to match the value of the existing product or service.

The main benefit of network effects is that they can help to create a large and loyal customer base. This can reduce competition, as it makes it difficult for new companies to enter the market. Additionally, it can also increase profits, as customers are more likely to purchase from a company with a large user base.

One example of successful network effects is Facebook. Facebook has been able to achieve network effects by creating a large and loyal user base. This has allowed Facebook to reduce competition in the social networking market, as it makes it difficult for competitors to match the value of the existing product.

Intellectual Property Protection

Intellectual property protection is another strategy used by big businesses to eliminate competition. Intellectual property refers to creations of the mind, such as patents, trademarks, and copyrights. Companies can use intellectual property protection to protect their inventions and ideas from being copied or used by competitors. This can help to reduce competition, as it makes it difficult for competitors to copy or use the protected ideas.

The main benefit of intellectual property protection is that it allows companies to protect their inventions and ideas from being copied or used by competitors. This can reduce competition, as it makes it difficult for competitors to replicate the protected product or service. Additionally, it can also increase profits, as companies can charge a premium for their products and services due to their unique features.

One example of successful intellectual property protection is Apple’s patent portfolio. Apple has been able to protect its inventions and ideas from being copied or used by competitors. This has allowed Apple to maintain its competitive advantage and reduce competition in the smartphone market.

Conclusion

In conclusion, there are several strategies used by big businesses to eliminate competition. These strategies include mergers and acquisitions, strategic alliances, price discrimination, economies of scale, cross-subsidization, network effects, and intellectual property protection. Each of these strategies can be used to reduce competition and increase profits, and some can even create barriers to entry for potential competitors. Ultimately, these strategies can help big businesses gain a competitive advantage in the market.