Final answer:
The market-based approach acts as a corroborative, secondary test to support the fair value determined by income-based methods in business valuation. It operates under certain assumptions about market conditions and competition that may not always be accurate, but it remains a useful guideline for assessing economic activities.
Step-by-step explanation:
The market-based approach is often utilized as a secondary method to corroborate the fair value determined by an income-based approach, rather than as the primary method. This approach is predicated on the assumption that the market under scrutiny is well-defined, and that measuring how sales are divided in that market is sufficient. However, this can overlook variations in competitive conditions across different industries. As such, antitrust regulators have been adapting their methods over recent years. A balanced microeconomic policy must consider both market and government strengths, avoiding oversimplified assumptions about their efficacy. With reference to the question, the correct statement is c) Market-based approach is a secondary test.
While markets strive for equilibrium, their success can vary due to multiple factors. Market concentration and competition levels can significantly influence market dynamics, thus affecting the reliability of both market-based and income-based approaches. Nevertheless, they provide guidelines by which relative importance of economic activities, such as in the assessment of mergers, can be gauged.