How does competition among too few sellers affect price?

Answer 1

When competition is limited to too few sellers, they can exert significant control over prices, often leading to higher prices for consumers. This lack of competition may result in price-fixing or collusion, as sellers may coordinate their pricing strategies to maximize profits rather than responding to market demand. Consequently, consumers have fewer choices and may face decreased product quality and innovation. Overall, the scarcity of competition can lead to market inefficiencies and reduced consumer welfare.