Which of the following, if true, would most undermine the reasoning offered for the claim that gray markets can in certain conditions lead to increased profits among authorized retailers?

Manufacturers and retailers tend to look askance at gray markets, where products are sold at cut-rate prices outside their authorized distribution channels. Manufacturers fear that gray markets will undercut margins and tarnish brand names. Retailers fear that they will siphon away customers and erode prices.

A new study indicates, however, that gray marketing actually benefits manufacturers and retailers in markets that meet two criteria: first, sharp differences exist in consumers’ price sensitivity; second, large numbers of consumers are price-insensitive. In such markets, the low prices of the gray market will attract the most price-sensitive customers. The authorized channels will then compete only for the remaining customers―those who are insensitive to price but sensitive to service.

When that happens, the structure of competition and the economics of the market shift. The authorized retailers, freed from having to cater to the bargain hunters, can raise their prices and focus on service. If the concentration of price-insensitive shoppers is high enough, the resulting increase in prices will more than offset the loss of sales to the bargain hunters. The margins and profits of the authorized retailers will increase, and manufacturers will, as a result, be able to boost their wholesale prices.

Which of the following, if true, would most undermine the reasoning offered for the claim that gray markets can in certain conditions lead to increased profits among authorized retailers?
A . More consumers have become price-sensitive over the last ten years and this trend will continue for the foreseeable future.
B . Gray markets typically remain strong even in markets where authorized retailers have introduced service enhancements.
C . Price wars among authorized retailers, triggered by the appearance of gray markets when few, if any, consumers are price-insensitive, lead to a cycle of increasing price reductions that severely narrow profit margins.
D . Authorized retailers who are competing for the business of price-insensitive consumers often become involved in a cycle of expensive service enhancements that significantly narrow profit margins.
E . Manufacturers who fear that gray marketing will tarnish their brand names sometimes subsidize advertising for authorized retailers, thereby narrowing the manufacturers’ profit margins.

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Answer: D