Contestable markets

Question 1

Key characteristics:

Answer 1

NO SUNK COSTS, equal info to enter market, low loyalty, low barriers to entry. They have slight market competition as the incumbent firms already have a head start.

Question 2

Example of contestable markets

Answer 2

Hair and beauty businesses in the UK- 952 new hair salons opened up after the pandemic in the UK

Question 3

EoS in Hello Fresh-

Answer 3

• Purchasing economies of scale- Hello Fresh can negotiate prices with suppliers for raw ingredients and inputs, they can bulk buy and have some monopsony power
• Financial economies of scale- Hello Fresh is publicly traded meal kit company based in Berlin with shares listed on the German Stock Exchange. Can raise new equity and borrow at cheaper interest rates

Question 4

Meal Kit market-

Answer 4

HelloFresh is the global leader in meal kits industry in 2012.

However in recent years, the UK market is facing more competition, with start ups such as Gousto, Mindful Chel and FeastBox.

The UK Kit meal industry is a duopoly with Hello fresh and Gousto, however there are new entrants

Question 5

Factors that affect prices of businesses such as Hello Fresh

Answer 5

• Changes in variable costs- Increase in input costs. Most likely to pass on higher cost if PED is low (inelastic).
• Prices set by rivals- in contestable duopoly- Hello Fresh needs to consider subscription prices set by rivals