Those where the barriers to entry and exit can be overcome.
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What are 4 features of contestable markets?
Freedom of entry and exit, no sunk costs, perfect information, firms produce where price = marginal cost.
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What does making markets more contestable lead to?
Incumbent firms behaving in more economically desirable ways with regard to pricing and static efficiency.
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Why does making firms more contestable lead to incumbent firms behaving more economically desirable?
The threat of new entrants taking a share of any supernormal profits that might exist if the incumbent firms did not behave as if they were in a perfectly competitive industry.
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What is hit and run competition?
Where new entrants take a share of the supernormal profits and then exit the industry.
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What do firms in contestable markets make?
Normal profits.
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Other cards in this set
Card 2
Front
What are 4 features of contestable markets?
Back
Freedom of entry and exit, no sunk costs, perfect information, firms produce where price = marginal cost.
Card 3
Front
What does making markets more contestable lead to?
Back
Card 4
Front
Why does making firms more contestable lead to incumbent firms behaving more economically desirable?
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