3.4.7 contestability

Question 1

Example of highly contestable markets

Answer 1

Taxi industrie- anyomne can join uber with a car
Hotel industries- AirBNB anyone with a house

Question 2

What does contestability mean

Answer 2

Threat of new of new firms joining the market. High constestability means that it likely that firms will join the market low means that it is unlikely.

Question 3

Charactoristic of contestable market

Answer 3

1. Perfect knowledge-> ppl see firms making abnormal profit-> encourages new fimrs to join
2. Freedom of entry and exit -> ez to leave or join-> low sunk costs
3. Wether new firms have acess to the best technology-> so they can lower AC
4. Low product loyalty-> consumers will stay with company

Question 4

Sunk costs?

Answer 4

Fixed costs that a business cant recover if it leaves industry E.G. Research and developement costs, marketing, machinenery and equipment -> even tho they can sell it will be for cheaper than they bought

Question 5

What us cross subsidisation

Answer 5

When a firm uses profit from another product to make a different product. E.G. apple funding new iphone with mac book profits