The entry of new firms into a market will ________ if the market power of the existing firms is large.

Question

Quizplus · Accepted Answer

If the market power of the existing firms is large, they have the ability to charge higher prices due to the lack of competition. When new firms enter the market, they increase the supply, which will drive down the price in order to compete. Therefore, the entry of new firms into a market will reduce the market price if the market power of the existing firms is large.

The Entry of New Firms into a Market Will ________