In the wine grape market in Australia, high profits caused many new suppliers to enter the market. Prices and profits then fell, which is what would be predicted by economic models of competitive...

In the wine grape market in Australia, high profits caused many new suppliers to enter the market. Prices and profits then fell, which is what would be predicted by economic models of competitive markets. However, the increase in supply has been so large that prices have fallen by an amount that has caused some wine grape suppliers to become unprofitable and to exit the market. This is not something that would be predicted by economic theory – supply should only have increased by a sufficient amount to decrease the profits of existing suppliers towards zero, but not to below that level. What do you think the economic theory of competitive markets is missing that is needed to explain why supply increased so much?