Question

Xerox, the U.S. Postal​ Service, and​ McDonald's have enjoyed significant market power in the past. List and explain three major factors that have eroded this market power. Market power is eroded when A. better substitutes become available because the market has less competition. B. fewer substitutes are available because the market has less supply. C. no substitutes are available because consumers have no choices. D. better substitutes become available because consumers will not be willing to pay as much for a good. E. fewer substitutes are available because consumers are more sensitive to prices.

Answer 1

Correct Answer:

E. fewer substitutes are available because consumers are more sensitive to prices.

Step-by-step explanation:

Market power is the ability of a company to successfully influence the pricing of its products or services in the overall marketplace. This is common among most big corporations that produces consumer goods and offer services.

This market power can be influenced by some factors. On the other-hand, the market power could be eroded leading to inability of the companies to influence prices do to the following:

1. Number of companies in the market: The lower the companies producing same product in the market, the higher the chances of the companies to be able to influence market prices. Otherwise, the market power will be eroded due to high number of companies.

2. Elasticity of demand: The persistent demand of a product by people helps to determine the market power of those companies. When this is lacking, the market power is eroded.

3. Product differentiation: The ability of a company to provide a unique product that offers good services in a market helps it to achieve market power. Lack of these erodes the market power.