Competitors

Written by True Tamplin, BSc, CEPF® | Reviewed by Editorial Team

Updated on December 21, 2022

Define Competitor in Simple Terms

A competitor is a rival business whose activities have the potential to reduce another business's share of the market.

A competitor who sells the same or a nearly-identical product or service is a "direct" competitor, such as Pepsi and Coca-Cola.

A competitor who sells a differing product or service which fulfills the same need is called an "indirect" competitor, such as Chipotle and Chick-fil-A. Due to the law of supply and demand, when new competitors enter into a market, the supply curve moves to the right, causing a decrease in the price customers are willing to pay per unit of product.

What Does Competition Mean in Finance?

Competition is the cause of two things that make economies flourish: innovation and affordability. To retain market share, competitors must either differentiate their offering through innovation and brand perception or through lower prices.

Example of Competition

Starbucks is an example of a competitor that gained market share by differentiating itself through brand perception, rather than on price.

Generic breakfast cereals that are similar, cheaper alternatives to larger-brand breakfast cereals are an example of a competitor differentiating themselves with lower pricing. Competitors are one of the 5 C's in marketing: Company, Customers, Competitors, Collaborators, and Climate.

Investors and Direct Competitors

Investors will often use direct competitors to compare and contrast financial statements and ratios.

Creating an analysis of an industry by examining the ratios of a group of competitors is called financial benchmarking and can help an investor detect outliers who may be over or under priced.

Step Up

Competitors are a normal and inevitable part of the market ecosystem. While it can be fierce, there are a number of ways to keep ahead with competition. Strategize with a financial advisor in Farmington Hills, MI or browse through our financial advisor page to get in touch with one closest to your area.

Competitor FAQs

What is a Competitor?

A competitor is a rival business whose activities have the potential to reduce another business’s share of the market.

What does competition mean in finance?

Competition is the cause of two things that make economies flourish: innovation and affordability, which means that to retain market share, competitors must either differentiate themselves through innovation and brand perception or through lower prices.

What's an example of competition?

Generic breakfast cereals that are similar, cheaper alternatives to larger-brand breakfast cereals are an example of a competitor differentiating themselves with lower pricing.

How do investors look at competitors of companies?

Investors will often use direct competitors to compare and contrast financial statements and ratios.

What is the difference between direct and indirect competitors?

A competitor who sells the same or a nearly-identical product or service is a “direct” competitor, such as Pepsi and Coca-Cola. A competitor who sells a differing product or service which fulfills the same need is called an “indirect” competitor, such as Chipotle and Chick-fil-A.

About the Author

True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website, view his author profile on Amazon, or check out his speaker profile on the CFA Institute website.

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