Final answer:
Lower switching costs for private labels are due to the minimal risk and fewer investments tied to brand loyalty compared to national brands. Competitive markets pressure firms to maintain low prices and reduce costs. The examples of economies of scale and power line infrastructure demonstrate the balance between production costs and market competition.
Step-by-step explanation:
Switching costs are often lower for private labels compared to national brands due to brand loyalty and the investments companies make in marketing and customer relationships. The text provided touches on economies of scale, which allow companies to produce goods at a lower average cost by spreading fixed costs over a larger number of units. However, this is beneficial only up to a point; beyond that, having many small firms as opposed to a few large ones can lead to each firm incurring higher costs, as is the case with the example of multiple firms having to build their own power lines.
In highly competitive markets, no single firm would be able to raise prices significantly above their competitors without losing business. This competitive pressure keeps prices low and incentivizes firms to minimize costs to maintain profit margins. Hence, switching costs are higher for national brands due to consumers' reluctance to change from a trusted brand to an alternative, whereas switching from one private label to another entails fewer risks and costs.