In a competitive market, what is most likely to happen when the rivalry among competing sellers in an industry intensifies?

• A. Barriers to entry increase, making it harder for new firms to enter.
• B. Firms are able to increase their profit margins easily.
• C. Product differentiation becomes less important.
• D. Market prices tend to decrease as firms compete for customers.

Answer: (D)

Verified step by step guidance

1. Understand the nature of a competitive market: In such markets, many sellers offer similar or identical products, and no single firm can influence the market price significantly.
2. Recognize that when rivalry among sellers intensifies, firms compete more aggressively to attract customers, often by lowering prices or improving product quality.
3. Recall that barriers to entry typically do not increase due to rivalry; instead, they are structural features of the market that affect new firms' ability to enter.
4. Note that increased competition usually reduces firms' ability to maintain high profit margins because price competition drives prices down toward marginal cost.
5. Conclude that as competition intensifies, market prices tend to decrease as firms try to gain or maintain market share, making price the key competitive tool.