Question

Which factor determining competition causes competition to be lower if companies have a varying level of product quality?

Answer 1

Lower competition due to varying product quality is influenced by product differentiation, where diverse product attributes allow companies to maintain market share by offering unique or higher-quality items. Imperfect information and strong brand recognition can also limit competition in the market.

Step-by-step explanation:

The factor determining competition that causes competition to be lower when companies have a varying level of product quality is product differentiation. This concept suggests that when products have distinct qualities, customers may perceive them as unique or superior in certain ways, which can justify different price points. As a result, companies selling higher-quality products can command higher prices and maintain market share even if competitors offer cheaper alternatives. On the other hand, the presence of imperfect information can discourage market participation, as buyers may be unwilling to pay more for products whose higher quality they cannot easily ascertain. Moreover, well-established companies may spend significantly on advertising and marketing to create recognizable brand names that further diminish the competition.

Essentially, varying product quality leads to a market where competition is based not just on price, but on perceived value. This may afford some protection to businesses against competitors with better or cheaper products because it presents an additional hurdle for new firms trying to establish themselves in the market, as seen in cases like the Boeing-Airbus oligopoly.

Answer 2

Competition can be lower when companies have a varying level of product quality due to the presence of imperfect information.

Step-by-step explanation:

In the presence of imperfect information, competition can be lower when companies have a varying level of product quality. This is because buyers are unable to determine the quality of the products, which makes them reluctant to participate in the market. Additionally, sellers of high-quality or medium-quality goods may be reluctant to participate because it is difficult to demonstrate the quality of their products to buyers.