Final answer:
Startups can compete with big companies by leveraging their agility and capacity for innovation, along with investments from founders, venture capitalists, and angel investors.
Step-by-step explanation:
Startups face the daunting challenge of competing with big companies, which often have more resources and market power. For instance, a startup airline entering a market dominated by a large incumbent may struggle as the larger airline could slash prices to the point where the startup cannot sustain its business. However, startups can leverage their agility, innovative capacity, and the personal investment of their founders to secure venture capital and angel investor support, aiding them to overcome challenges posed by imperfect information and establish a foothold in the market. Innovations yield a temporary competitive advantage by allowing startups to produce cheaper or more appealing products than existing firms, which can disrupt market dynamics and create opportunities for startups to thrive despite the competitive pressure from bigger players.
Hence, the balance between corporate size and the number of competitors, as well as the government's role in regulating this balance, is critically important in fostering a healthy and competitive market.