Unit 3 Economics

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  • Created by: lauren
  • Created on: 02-01-15 14:36
What is a Contestable market?
imperfectly competitive markets in which firms face real and potential competition. The key requirement for a market to be contestable is low barriers to entry/exit and the absence of sunk costs. Threat of hit and run entry of new rivals
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What are the 3 conditions for market contestability?
absence of sunk costs, freedom to enter the market with low barriers and the ability and right to use the best technology.
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What is hit and run entry?
Hit and run entry is where firms enter the market when profits are abnormal and leave as soon as profits fall.
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What is a sunk cost?
Costs which are already invested in an industry which cannot be recovered. A main sunk cost is advertising. High sunk costs deter new rivals from entering the market and contestability will be low.
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How do you make a market more contestable?
Deregulation- reducing barriers to entry to liberalise a market. Tougher competition laws- acts against predatory pricing behaviour and the prevention of cartels.
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What is meant by Creaming the market/price skimming?
Selling a unique or new product in the top price range before substitutes appear and bring down the price. By the time this occurs, the firm has already 'creamed' the market.
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Card 2

Front

What are the 3 conditions for market contestability?

Back

absence of sunk costs, freedom to enter the market with low barriers and the ability and right to use the best technology.

Card 3

Front

What is hit and run entry?

Back

Preview of the front of card 3

Card 4

Front

What is a sunk cost?

Back

Preview of the front of card 4

Card 5

Front

How do you make a market more contestable?

Back

Preview of the front of card 5
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