Question

A columnist in the Wall Street Journal made the following observation "The [oil] refining business is just too competitive, which is great for consumers, but not shareholders." Source: James B. Stewart, "Coping with the Inevitable: The Losers in Your Portfolio," Wall Street Journal, December 3, 2008. Briefly explain why the high level of competition in the oil refining industry is good for consumers but bad for the shareholders who own these firms. As competition increases, 0 A. price for consumers will decrease and profits for shareholders will increase. price for consumers will decrease and profits for shareholders will decrease. price for consumers will decrease and marginal costs for shareholders will increase. variety for consumers will decrease and consumer demand for shareholders will decrease. variety for consumers will increase and excess capacity for shareholders will decrease. B. 0 C. 0 D. E.

Answer 1

When there is high competition in the industry the producers/manufacturers tend to loose their share in the market so they offer discounts and try to attract customers so that they get more share In the industry and earn profits

In order to do that they try to decrease the price than before and will try to increase their sales which leads to decrease in profits by which shareholders profit also decreases

This will benefit the consumers as they can get quality product at low price which is good which they do due to heavy competition but at the same time it reduces the profits whereby the profits avaliable for shareholders decreases.