Final answer:
The introduction of cost-reducing technology in a perfectly competitive market usually leads to lower prices and potential economies of scale, but it could also lead to a more concentrated market structure if the technology is not widely accessible.
Step-by-step explanation:
When new technology lowers production costs in a perfectly competitive market, it can lead to significant market changes. Typically, firms that adopt the technology reduce their average cost of production, which can result in lower prices for consumers. If the technology is widely accessible, the industry as a whole may benefit from economies of scale, where increased production leads to lower average costs.
However, if the technology is proprietary or if there are substantial barriers to adoption, companies that succeed in integrating the new technology could gain a substantial competitive advantage. This could potentially shift a perfectly competitive market towards a more oligopolistic market structure, where a handful of firms dominate. In such cases, whether cost savings are passed on to consumers is uncertain, and depends on the competitive strategies of the large firms.
Furthermore, reduced costs might encourage existing firms to increase production or attract new firms into the industry, increasing supply and potentially leading to further price reductions. Yet, the long-term impact on prices also depends on how the reduction in production costs affects consumer demand and industry output levels.