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How do economies of scale and product differentiation (both desirable qualities) alter the nature of markets...

How do economies of scale and product differentiation (both desirable qualities) alter the nature of markets in the real world in negative ways?

  

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Answer - Economies of scale is a barrier to entry. Not all firms enjoy this in their production. As a result , this leads to the gaining of the market power with lesser or no competition. It helps in increasing the producer profits more and more through decreasing cost. On the other hand , product differentiation leads to price discrimination which leads to loss in consumer surplus and again the additional gain in producer surplus. In both these cases , the social surplus is not maximised. Hence this leads to deadweight loss in the markets and market failure.

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