Multiple Choice
In the context of competitive markets, in which one of the following instances is supplier bargaining power and leverage not weakened?
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3. The Market Forces of Supply and Demand
Competitive Markets
Multiple Choice
In a competitive market, if your company increases its market penetration, which of the following is most likely to occur?
A
Your company's market share increases, but overall market prices remain largely unchanged due to competition.
B
Your company can set higher prices without losing customers.
C
The market becomes a monopoly controlled by your company.
D
Barriers to entry for new firms increase significantly.
Verified step by step guidance1
Understand the nature of a competitive market: In a perfectly competitive market, many firms sell identical products, and no single firm can influence the market price significantly.
Analyze what happens when one company increases its market penetration: This means the company sells more relative to its competitors, increasing its market share.
Consider the effect on market prices: Because the market is competitive, other firms will respond to changes in quantity supplied, keeping prices stable overall. Hence, the overall market price remains largely unchanged.
Evaluate the possibility of setting higher prices: In a competitive market, if one firm raises prices above the market level, customers will switch to competitors, so the firm cannot set higher prices without losing customers.
Assess the likelihood of monopoly or increased barriers to entry: Increasing market share alone does not create a monopoly or significantly raise barriers to entry in a competitive market, as many firms can still enter and compete.
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