Question

Frequent price cutting by firms in an industry, frequent introduction of new products by firms in an industry and intense advertising campaigns are indications of

A) high power of buyers.
B) high threat of new entrants.
C) high levels of direct competition.
D) high threat of substitutes.

Answer 1

Frequent price cutting, new product launches, and aggressive advertising indicate high levels of direct competition in an industry where firms are likely to have similar market power and product offerings.

Step-by-step explanation:

Indications such as frequent price cutting by firms in an industry, frequent introduction of new products, and intense advertising campaigns suggest a high level of direct competition among existing companies.

These practices are common when firms possess similar market power and offer similar products, as firms then tend to compete on the basis of price, advertising, and other product differences in an attempt to gain a competitive edge.

In such competitive environments, businesses might also engage in actions like predatory pricing, although such strategies are typically illegal under U.S. antitrust law.

Therefore, the correct answer is C) high levels of direct competition.