contestable market Flashcards
1
Q
definition
A
Market with a threat of competition
2
Q
characteristics of contestable market
A
- Low barriers to entry/ exit
- Large pool of potential entrants
- Good information
- Incumbent subject to hit n run competitions
3
Q
Technology link to contestability:
A
- Lower barriers to entry, as business can be online, maybe less workers and advertising is easier
- Larger pool of potential entrants – higher innovation
- Improved information
4
Q
Why would a firm making SNP in a contestable market move to producing at AC = AR?
A
- Eliminate the threat – lower profit margins = lower incentive
- To be prepared if the threat becomes real, lower price higher quantity.
5
Q
PROS
A
Similar to competitive market
- AE
- PE + XE
- Job creation – labour is derived demand
6
Q
CONS
A
- Lack of DE
- Cost cutting may be in dangerous areas
- Creative destruction
- Anti-competitive ness strategies
7
Q
Implications of contestable markers
A
- hit n run tactics
- will only be able to make normal profits in LR - low DE
- likely to be productive and allocatively efficient as this makes them the most competitive
