contestable markets

Question 1

what is a contestable market and facts

Answer 1

-threat of comp that can influence market structure

-low barriers to entry and exit
-large pool of potential entrants
-good info
-incumbant firms subject to hit and run comp

Question 2

effect of tech on contestability

Answer 2

-decrease barriers to entry (Econ of scale, sunk costs)
-increase pool of potential entrants (lower cost of entry)
-improved info: interntet and communication

Question 3

monopoly market contestability

Answer 3

-strong heat of entrants will move to normal profits
-lower profit margins to eliminate threat and remove incentive
-prepared if threat becomes real and can thus compete

Question 4

pros and cons of contestable markets

Answer 4

pros: allocative productiv, x efficiency and job creation
cons: lack of dynamic, cost cutting dangerous, creative destruction, anti comp strategy

Question 5

evaluation of contestable markets

Answer 5

-length of contestability (patents, anti comp), role of tech (patents and copyrights), regulation and dynamic