Contestability

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  • Created by: meloakes
  • Created on: 29-03-15 12:34
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  • Contestability: The extent to which barriers to entry & exit are free & costless
    • The lower the barriers to entry the higher the contestability
    • Sunk costs: these costs that cannot be recovered if a firm ceases operation
    • Hit & Run: when a firm enters for supernormal profit and then leaves when it goes to normal
    • Pool of new entrants
    • Entry and Exit are costless
    • incumbent firms are vulnerable to hit and run
    • Think Threat!!

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