What has profitability to do with this?

[bartholomew]

Hey guys

I got an assignment and I do not know how to answer this question:

How important is profitability in establishing if there is a competition problem?

any suggestions welcome

[vicars]

With anything like this you need to think logically with different examples and make the most of the ideas generated from them. So say you start with a business that has profits of 10 times its expenditure/costs. Imagine you are a car dealer and imaging making 10 times the profit over costs. For a car dealer this would be fantastic and can only mean 1 thing - either the buyers are stupid or there is competition. Maybe there is a sudden need to buy cars such as a huge tidal wave approaching - I could go on. Imagine though the reality which is car dealers can often be lucky to make a profit - this is because the competition is huge from dealers all around the world trying to sell their cars. If you look at another example such as bank charges, banks make huge profits quite often yet the market is full of financial institutions with a lot of choice, so perhaps there is something else going on - perhaps the banks are artificially keeping charges high etc as the government has claimed many times and has tried to get the banks to do something about. Profits have come down (as have share prices) but big profits can still be made. I think the question is asking you to look at things in this way and to analyse different reasons for competition problems being related to profitability. I would suggest taking different industries etc and to try google for news stories on profitability ("banks" and "profits" for example). Either way there are loads to write about. Good luck.

[jason1980]

Hi, Im an accountant.

Profitablility is important when establishing if there is a competition problem because one it depends who you are in competition with and how many companies. How can you profit against companies with a larger share of the market.

That might help as a starting point...