3.4.7 Contesability

Question 1

What is contestability?

Answer 1

• measure of the ease with which firms can enter or exit an industry

Question 2

What are Characteristics of a contestable market?

Answer 2

• lower barriers to entry
• poll of new entrants willing and ready to enter the market
• low sunk costs
• low levels of supernormal profit

Question 3

Characteristics of low level of contestability in an industry?

Answer 3

• high barriers to entry and exit
• high sunk costs
• high concentration ratio

Question 4

What are barriers to contestability? G

Answer 4

• Economies of scales
• brand loyalty
• pricing strategies
• control of important technologies

Question 5

What are types of barriers to exit?

Answer 5

• advertising
• costs of closure
• specialised machinery