Which of the following is the most important constraint on the explanatory power of the IO paradigm?
A)Many industries are imperfectly competitive.
B)Many companies are locally but not internationally competitive.
C)Most customers have perfect knowledge of the products they select.
D)Most industries have many firms that each have small market shares.

Question

Quizplus · Accepted Answer

The most important constraint on the explanatory power of the IO paradigm is that many industries are imperfectly competitive. This means that the assumptions of perfect competition, which underlie much of the IO paradigm, do not hold in many real-world industries. Imperfect competition can result in market inefficiencies and pricing that deviates from marginal cost, which undermines the ability of the IO paradigm to explain market outcomes.

Which of the Following Is the Most Important Constraint on the Explanatory