In the context of competitive markets, what does it imply if an e-commerce website offers fewer models, colors, and sizes than a physical store?

• A. The physical store has lower fixed costs than the e-commerce website.
• B. The e-commerce website is operating in a monopoly market structure.
• C. The e-commerce website faces higher marginal costs than the physical store.
• D. The e-commerce website may have less product differentiation compared to the physical store.

Answer: (D)

Verified step by step guidance

1. Step 1: Understand the concept of product differentiation in competitive markets. Product differentiation refers to the ways in which products are made distinct from one another, such as through variety in models, colors, and sizes, which can influence consumer choice.
2. Step 2: Recognize that in competitive markets, firms often try to differentiate their products to attract more customers. A physical store offering more models, colors, and sizes suggests greater product differentiation compared to an e-commerce website offering fewer options.
3. Step 3: Analyze the implications of fewer product options on the e-commerce website. Fewer models, colors, and sizes imply less variety and thus less product differentiation, which can affect consumer preferences and competitive positioning.
4. Step 4: Evaluate the other options given: fixed costs, market structure (monopoly), and marginal costs. These factors relate to cost structures and market power but do not directly explain the difference in product variety offered.
5. Step 5: Conclude that the key implication is about product differentiation. The e-commerce website offering fewer options means it may have less product differentiation compared to the physical store, which aligns with the correct answer.