Question

Why do increasing returns to scale in an industry make it more likely that the industry will be oligopolistic rather than perfectly competitive?

Answer 1

A firm in the market achieves increasing return to scale when they are producing at a large scale, this makes the price of the goods cheaper, any new entrant in the market will not be able to match that low price if they are producing at a lower level. this decreases the chance of more and more firms entering the market and the existing firms will cover the whole market, that is why in the market where there is increasing return to scale we have an oligopolistic market.