Multiple Choice
Which of the following is an advantage, independent of size, that incumbent firms possess in competitive markets?
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3. The Market Forces of Supply and Demand
Competitive Markets
Multiple Choice
In the context of competitive markets, what is a likely outcome when the retail sector is very concentrated?
A
Increased number of small firms entering the market
B
Reduced competition and higher prices for consumers
C
Greater product variety and lower barriers to entry
D
Lower market power for existing firms
Verified step by step guidance1
Understand the concept of market concentration: In a highly concentrated retail sector, a few large firms dominate the market, which means there are fewer competitors.
Recall the characteristics of competitive markets: Competitive markets typically have many small firms, free entry and exit, and firms are price takers, leading to lower prices and more choices for consumers.
Analyze the effect of concentration on competition: When the retail sector is very concentrated, the dominant firms have more market power, which reduces competition among firms.
Consider the consequences of reduced competition: With less competition, firms can influence prices, often leading to higher prices for consumers and potentially less incentive to innovate or offer variety.
Conclude that in a concentrated retail market, the likely outcome is reduced competition and higher prices for consumers, rather than increased entry, greater variety, or lower market power.
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