Contestable markets

HideShow resource information
  • Created by: Lottie
  • Created on: 20-01-13 09:52
Preview of Contestable markets

First 176 words of the document:

A market where there is freedom of entry to the industry and where
costs of exit are low
Conditions necessary for a perfectly contestable market
Perfect information: ability & legal right to use the best available
production technology in the market
Freedom to enter a market: advertise and compete with a product
Absence of sunk costs: reduces risks of coming into a market
Hit and run entry
Short run entry into a contestable market seeking to take some of the
supernormal profits available and then get out quickly without a cost
How do firms in a contestable market act?
Usually have low profit margins as they only need to attract customers
with low prices
The threat of competition may be just as powerful an influence on the
behaviour of existing firms in a market than the actual entry of new
businesses as more firms can enter at any time
Determined by the threat of competition


No comments have yet been made

Similar Economics resources:

See all Economics resources »See all resources »