Question

The threat of direct competition tends to be high whenAnswers: there are few firms in an industry and these firms tend to be unequal in size.the industry growth rate is higher.firms are unable to differentiate their products.production capacity can be added in small increments.

Answer 1

When firms are unable to differentiate their products

Step-by-step explanation:

Direct competition is also known as perfect competition which occurs when two or more firms produce and sell the commodities that are not in anyway different. This makes the buyers not have preference for any of the product as the commodities are largely the same.

However, when firms can differentiate their products, they now more in perfect competition but now in indirect competition or monopolistically competitive market. Indirect competition therefore occurs when firms sell differentiated products which are not really the same because they are branded but these products can provide the same satisfaction to the need of the consumer.

Therefore, the threat of direct competition tends to be high when when firms are unable to differentiate their products.

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