Contestability Flashcards
1
Q
What is contestability?
A
The degree of threat of competition in a market - in a highly contestable market the threat is likely high as barriers to entry will be lower
2
Q
What are the features of contestable markets ?
A
- number of firms in the industry varies from one to many firms with no single firm having significant shore of the market.
- freedom of entry and exit from the market
- firms compete with each other and do not collude to fix prices
- firms may produce homogeneous goods or they may produce branched goods
- there is perfect knowledge in the industry
3
Q
How can you encourage contestability?
A
Lowering barriers to entry! - (only answer really)
