T5 - Contestable markets

Question 1

What is a contestable market

Answer 1

WHere there is freedom to enter or exit a market

Question 2

Will there be sunk costs in contestabel markets

Answer 2

Soem but they are lwo

Question 3

What threat is there for firms in conetsable markets

Answer 3

New firms entering

Question 4

Whta does teh threat of new firms do

Answer 4

Keep prices low
More comeptitive prices

Question 5

WHat will profits be liek in contestable markets

Answer 5

Generally lwoer, closer to ATC = AR

Question 6

Benefits of contestable markets

Answer 6

Potential P = MC
X efficiency
Inc consumer welfare

Question 7

Can there be siginificant EoS in a contestable market

Answer 7

Yes as there isnt neccessarily 1000s of firms

Question 8

Are tehre sunk costs to exit a CM

Answer 8

No, assuming a firm can recover investment when it leaves

Question 9

What is hit and run entry

Answer 9

NEw firms entering markets to make supernormal profits then leave

Question 10

Methods to increase contestability

Answer 10

Remove legal barriers to entry
Shaare ifnrastrcture
Legistlation against rpedatory pricing
Legislate against monoply power abuse