What happens to profits as a market approaches saturation during the Shake-Out Phase?

As a market approaches saturation during the Shake-Out Phase, profits typically start declining. This decline is due to increased competition among firms as they vie for market share in a limited market, which can lead to price reductions and excessive capacity. Companies may need to engage in promotional pricing or enhance their marketing efforts to retain customers, further squeezing profit margins. Additionally, as consumer demand stabilizes and growth slows, businesses may find it challenging to maintain their previous levels of profitability. The Shake-Out Phase is characterized by the exit of weaker competitors and a consolidation of market share among stronger firms, but overall, the competitive pressures lead to declining profits for many participants in the market.