In a competitive market, what is most likely to happen if rivalry among competing sellers decreases?

• A. Consumer surplus will increase as sellers compete more aggressively.
• B. The market will become more efficient and prices will fall.
• C. The number of sellers in the market will increase.
• D. Market prices will tend to rise due to reduced competition.

Answer: (D)

Verified step by step guidance

1. Understand the concept of rivalry among sellers: In a competitive market, rivalry refers to how aggressively sellers compete with each other, often by lowering prices or improving products to attract consumers.
2. Recognize the effect of decreased rivalry: When rivalry among sellers decreases, sellers are less motivated to compete on price or quality, which can reduce the pressure to keep prices low.
3. Analyze the impact on market prices: With less competition, sellers may have more market power, allowing them to raise prices since consumers have fewer alternatives.
4. Consider the effect on consumer surplus: Consumer surplus typically decreases when prices rise because consumers pay more or buy less, reducing the benefit they receive from the market.
5. Summarize the overall market outcome: Reduced rivalry among sellers tends to lead to higher prices, lower consumer surplus, and potentially less efficient market outcomes, contrary to increased competition scenarios.