Competition in an industry tends to drive rates of return on invested capital up towards the level of "perfect competition."

Question

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Competition in an industry tends to drive rates of return on invested capital down towards the level of "perfect competition." This is because competition forces companies to lower prices and improve efficiency in order to remain competitive, which reduces profit margins. Only in a perfectly competitive market where all companies have equal access to resources and technology would rates of return be at the lowest possible level.

Competition in an Industry Tends to Drive Rates of Return