Pearson Edexcel International GCSE Economics: Business competition (4EC1) – Revision Notes

These notes condense section 1.2.4 (Business competition) of the Pearson Edexcel International GCSE Economics (4EC1) specification, Issue 3, February 2026, for Paper 1. There is a single tier of entry. For full explanations and worked examples, read the study guide, then test yourself with the practice questions. Course pages: Edexcel IGCSE Economics hub and printable checklist. To find weak areas first, try the free 10-minute diagnostics. All figures below are invented.

Competition (point a)

Five headings to use every time: efficiency, choice, quality, innovation, price.

Heading	With competition	Without competition
Efficiency	Pressure to cut waste and cost	Costs can creep up
Choice	More sellers and variety	Few alternatives
Quality	Firms improve to keep customers	Little reason to improve
Innovation	Firms race to find new ideas	Less pressure, but more profit to spend
Price	Held down by rivals	Can be raised

Who is affected: consumers (price, choice, quality), firms (profit squeezed, risk of closure), economy (output, jobs, living standards).

Large and small firms (point b)

• Large: economies of scale, finance, advertising, market power. Risks: slow communication, diseconomies of scale, less competition.
• Small: flexible, personal service, quick decisions. Risks: higher unit cost, harder to borrow, less able to spread risk.

Growth and staying small (points c, d)

Helps growth	Keeps firms small
Access to finance (profits, loans, shares)	Lack of finance
Economies of scale	Small size of market
Spreading risk (more products or areas)	Niche market
Taking over competitors	Aims of the entrepreneur (income, free time, control)
Government regulation (can help or restrict)

Method: market share. Market share = firm’s sales / total market sales x 100. A takeover adds the two sales figures before dividing.

Small reminder: a firm sells 30,000 units in a market of 120,000. Share = 30,000 / 120,000 x 100 = 25%.

Method: average cost. Average cost = total cost / output. Example: total cost 9,000 for 3,000 units gives 3.00 each.

Chains of reasoning to learn

Competition lowers price. More firms, so each fears losing customers, so each keeps price low, so consumers pay less. Limit: if losses are heavy, some firms close and competition falls.

Economies of scale help growth. Output rises, so average cost falls, so the firm can charge less than smaller rivals or earn more per unit, so it can win more customers and finance more growth.

Spreading risk. A firm with one product depends on one market. Adding a second product or a second area means a fall in demand in one is partly covered by the other, so the firm is less likely to fail.

Barriers protect a monopoly. A barrier raises the cost or difficulty of entry, so newcomers stay out, so the firm keeps its dominant share, so it can keep price above what rivals would charge.

Price war. One firm cuts price, rivals fear losing sales and cut too, so prices fall for everyone, so profits fall. Consumers gain at first. Weak firms may close, and the survivors may then raise price.

Monopoly (points e, f, g)

Definition: one business dominates the market.

Features: one dominant business, unique product, price-maker, barriers to entry.

Barrier	One-line reason
Legal	The law grants sole rights or demands licences
Patents	Sole right to make an invention for a set time
Marketing budgets	Newcomers must match heavy advertising
Technology	Special equipment or know-how
High start-up costs	Too expensive for most to enter

Heading	For	Against
Efficiency	Large scale cuts duplication	No pressure to cut waste
Choice	Simple standard product	Few alternatives
Quality	Profits can fund quality	Little reason to improve
Innovation	Patents and profits fund research	No rival to beat
Price	Scale savings could lower price	Price-maker can charge more
Economies of scale	Lower average cost	Savings may stay as profit

Method: evaluate monopoly.

1. State the problem: price-maker with no close rival.
2. Say who loses: consumers pay more or have less choice.
3. State the possible gain: economies of scale, funded innovation.
4. Judge: it depends on whether savings are passed on and whether the barriers last.

Oligopoly (points h, i, j)

Definition: a market where a few large firms supply most of the output.

Features: few firms, large firms dominate, different products, barriers to entry, collusion, non-price competition, price competition.

Type of rivalry	Examples
Non-price competition	Advertising, branding, quality, after-sales service, loyalty schemes, packaging
Price competition	Cuts to win share, which can become a price war
Collusion	Agreeing prices or output; a group doing so is a cartel

• Cartel: firms fix a high price, so consumers pay more and buy less. Many governments make this illegal.
• Cheating: a member cuts price secretly to win more sales. The deal can collapse.
• Price war: repeated price cuts. Consumers gain at first. Weaker firms may close, and the survivors may raise prices later.
• Advantages of oligopoly: choice, quality and innovation from competing brands and large profits.

Small reminder. Firms each earn (8 - 5) x 4,000 = 12,000 at a price of 8 and cost of 5. A cartel lifting price to 10 and cutting sales to 3,000 each gives (10 - 5) x 3,000 = 15,000. Profit rises by 3,000 each, although sales fall 25%.

Evaluation checklist

Use this when a question says discuss, evaluate or assess.

1. Give one or two points for, each with a reason.
2. Give one or two points against, each with a reason.
3. Name a factor that decides the outcome, for example whether cost savings are passed on, how long a patent lasts, whether a regulator acts, or how many rivals remain.
4. Write a short judgement that answers the exact question asked.

Worked pattern: “A cartel is always bad for consumers.” For: it can fund research from higher profit. Against: price is fixed above the competitive level and sales fall. Deciding factor: whether the extra profit is really spent on new products. Judgement: mostly bad for consumers, because the higher price is certain while the extra innovation is only possible.

Worked pattern: “Small firms are better than large firms.” For small: quick decisions and personal service. For large: economies of scale and finance. Deciding factor: the market. A niche market may favour small firms, and a mass market may favour large ones.

Must-know distinctions

• Monopoly versus oligopoly: one dominant firm versus a few large firms. Monopoly firms are price-makers with barriers. Oligopoly firms watch each other and use non-price competition.
• Cartel versus merger: a cartel is an agreement between firms that stay separate. A merger or takeover joins firms.
• Price war versus price competition: price competition is a normal tactic. A price war is a damaging round of cuts.
• Large firm versus monopoly: a large firm can still face rivals.

Quick self-test

1. Define monopoly.
2. State two features of oligopoly.
3. Name three barriers to entry.
4. Total sales in a market are 120,000 units. Firm X sells 30,000 and Firm Y sells 18,000. Calculate the market share of X and the combined share if X takes over Y.
5. A firm’s total cost is 12,000 at an output of 4,000 units. Calculate average cost.
6. Give two reasons why a firm might stay small.
7. Give two examples of non-price competition.
8. Explain why a cartel may collapse.
9. State one advantage of monopoly for efficiency.
10. A price rises from 40 to 50. Calculate the percentage change in price.
11. A small firm’s average cost is 5.00 and a large rival’s is 4.00. Calculate the fall as a percentage of the small firm’s cost.
12. Explain why a firm might want to take over a competitor.

Answers

1. A market in which one business dominates.
2. Any two: few firms, large firms dominate, different products, barriers to entry, collusion, non-price competition, price competition.
3. Any three from: legal barriers, patents, marketing budgets, technology, high start-up costs.
4. X: 30,000 / 120,000 x 100 = 25%. Combined: (30,000 + 18,000) / 120,000 x 100 = 40%.
5. 12,000 / 4,000 = 3.00 per unit.
6. Any two: small market, niche, lack of finance, owner’s aims.
7. Any two: advertising, branding, quality, after-sales service, loyalty schemes, packaging.
8. Each member gains by secretly cutting price and winning sales. Once one does, others follow, and prices fall.
9. Economies of scale, because high output lowers average cost.
10. (50 - 40) / 40 x 100 = 25%.
11. (5.00 - 4.00) / 5.00 x 100 = 20%.
12. It removes a rival, adds customers and market share, may bring economies of scale and may give more power over price.

Where marks are usually lost

• Defining monopoly as a firm with no rivals only, rather than one that dominates.
• Listing barriers to entry without saying how they block newcomers.
• Describing oligopoly without mentioning that products differ.
• Treating a cartel as always successful, with no mention of cheating.
• Leaving out the final sentence of evaluation questions.
• Dividing a change by the later value rather than the starting value.
• Forgetting that a takeover raises market share by adding both sales figures.
• Confusing non-price competition with a price cut.

Official syllabus

Pearson Edexcel International GCSE Economics (4EC1) specification, Issue 3, February 2026, published by Pearson Education Limited, section 1.2.4.