Question

Is FDI (foreign direct investment) in retail trading a step towards competitive market structure? Give reason.

Answer 1

FDI in retail trading is expected to promote competitive market structure. But, a market structure in which there is competition among a few. Because, only big firms can bring FDI. Once big firms enter the market, they tend to increase their control of the market through heavy advertisement. Initially, these firms may sell their product at a lower price, lower than the domestic producers. This is called 'price-cutting'. But once they achieve a strong foot-hold, they start exploiting the market by charging higher and higher price. There is a competitive market structure, but with high market concentration.