Question

Suppose a market is initially perfectly competitive with many firms selling an identical product. Over time, however, suppose the merging of firms results in the market being served by only three or four firms selling this same product. As a result, we would expect
a decrease in market output and an increase in the price of the product

Answer 1

The merging of firms results in the market being served by only three or four firms selling this same product would lead to a decrease in market output and an increase in the price of the product. This is oligopoly

Initially if it is perfectly competitive it is almost impossible for other firms to enter. Now as it is said that if they do enter and they ultimately sell the same product they don't have any control on the price of the product. This is sometimes known as oligopoly, and they try to replace the product with close substitutes.

Oligopoly- An oligopoly is a market structure in which a small number of large sellers or producers dominate a market or industry. Oligopolies are frequently the result of a desire to maximize profits, which can lead to collusion among companies.

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