In competitive markets, the pressure of rivalry increases when which of the following forces increases in intensity?

• A. Barriers to entry become higher
• B. Buyer power decreases
• C. Product differentiation becomes more pronounced
• D. The number of firms in the market increases

Answer: (D)

Verified step by step guidance

1. Understand the concept of competitive markets: In perfectly competitive markets, many firms compete, and no single firm can influence the market price. Competition is driven by the number of firms and the ease of entry and exit.
2. Analyze how barriers to entry affect competition: Higher barriers to entry make it harder for new firms to enter the market, which reduces competition and rivalry among existing firms.
3. Consider the role of buyer power: When buyer power decreases, buyers have less influence over prices and terms, which typically reduces competitive pressure on firms.
4. Examine product differentiation: More pronounced product differentiation means products are less substitutable, which can reduce direct rivalry because firms compete on different features rather than price alone.
5. Focus on the number of firms: An increase in the number of firms in the market means more competitors are vying for the same customers, which intensifies rivalry and competitive pressure.