Question

1. Too few, or too many competitors are bad for the market. Why? What is the benefit to customers and businesses of the “right” number of competitors? Explain please in a paragraph

Answer 1

Too Few competitors lead to the price setting orientation of the market where all the competitors can collude to set the price at higher than equilibrium values to earn supernormal profits. Even if there is no collusion, the choices for the consumers are limited and have to accept whatever comes from these sellers and the price which is generally higher than the value due to the high cost of finding the alternative which will compel the buyer to accept their high price.

Large no of competitors leads to the price taking orientation of the maket where the price reduced to the point where the sales are not maximized but the value of the profits keep on increasing. In such a market, competitors make very less profit which sometimes make them adopt shoddy trade pratices, black market, hoard or denial of certain service features. This is ultimately bad for consumer too. Some consumers also make losses just to capture the largest share of the market leading to the inefficent utilization of resources or aleast deflation which can impact the employment levels.