constable markets

Question 1

Constanbke markets

Answer 1

If barriers are low and firm is making a supernormal profit
Will encourage other firms to join the market
Increase competition to incumbent firms
Incumbent firms have incentive to set low prices that that won’t make big supernormal profit
Sunk cost - you cannot recoup or get value back - advisement to promote your product
For perfectly contestable market, entry into and exit out must be costless

Question 2

Firms become less contestable if there are high barriers to entry

Answer 2

Patents
Have a string brand loyalty
Threat of limit pricing
Trade restrictions

Question 3

examples of constable markets

Answer 3

Technology
Deregulation
Globalisation
Resistance pf emyerpenures
Accessibility of training
CMA

Question 4

example of non constable markets

Answer 4

Brand
Connectivity
High profits

Question 5

Define a perfectly constable markets

Answer 5

A perfectly constable market will have perfect information and no sunk costs and so no entry and exit barriers. Sunk costs are those which a firm when entering a market and which are irrecoverable should the firm decide to leave the industry. Any firm making supernormal profits opens up opportunities for new enrants to enter the market nd undercut existing prices and take the profit for themselves. Thus if an industry is constable then incumbent firms may be forced to act as if they are in competition and be satisfied with making only normal profits., where average cost equals average revenue because of the threat of hit and run competition.