Contestability 3.4.7

Question 1

Define Constestability

Answer 1

freedom of entry into a market & where costs of exit are low

Question 2

What are the 4 characteristics of a contestable market

Answer 2

No barriers to entry/exit
Perfect information
Hit and run competition

Question 3

What is Hit and Run competition

Answer 3

Incumbent firms make SNP, new firms enter, new firms undercut, stealing SNP

Question 4

How to prevent Hit and run competition

Answer 4

Set Price = AC, or AC=AR

Question 5

How has technology increased/decreased contestability

Answer 5

reduced startup costs
increased patents
increased provision of information
data used to price discriminate