Which of the following is an effect of competition when a new store opens next to an existing business?

• A. Provides more choice for customers
• B. Brings passing trade to the area that the business can take advantage of
• C. Competition can lower prices, undercutting the business and forcing them to lower prices too or risk losing customers
• D. Increases supplier margins

Answer: (C)

When a new store opens next to an existing business, competition tends to push prices down as each shop tries to attract customers away from the other. The effect that best fits this situation is that rivals can undercut prices, forcing the existing business to lower its prices too or risk losing customers to the cheaper option. This price pressure is a common consequence of close competition and can squeeze profit margins if volume doesn’t compensate. While added choice for customers or more passing trade might occur, the direct impact highlighted here is the pressure to lower prices. Increasing supplier margins is unlikely in a more competitive environment, where price competition typically narrows margins rather than expands them.