A firm operating in a market with many competitors has more freedom to increase its prices without losing a significant number of customers compared to a firm with no direct competitors.
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Pricing in a Competitive Market
Imagine two towns of similar size. Town A has only one grocery store. Town B has five different grocery stores located within a short distance of each other. If the single store in Town A and one of the stores in Town B both increase the price of a gallon of milk by 15%, which outcome is most likely to occur?
Market Competition and Pricing Power
Evaluating a Pricing Strategy in a Changing Market
A firm operating in a market with many competitors has more freedom to increase its prices without losing a significant number of customers compared to a firm with no direct competitors.