Th3.4: Reasons for Increasing Contestability Flashcards
The recession has meant that entrepreneurs…
do not accept the existing market structure is fixed e.g aldi/lidl changed the structure of supermarkets by offering much lower prices and increasing market share
What has the deregulation of markets allowed?
a reduction of some barriers to entry in some industries - moreover, competition policy has meant firms can no longer use predatory pricing and cartels so markets are more contestable
What has the European single market done?
opened up new markets for firms and so these firms can enter into the market, making them contestable
What has globalisation done?
globalisation in general has increased contestability, since foreign firms can enter domestic markets
What have changes in technology done?
reduced entry costs as capital is more mobile
What has the rise of internet shopping done?
means that firms no longer have to find retailers for their products and so can easily enter the market and sell their goods online
What would we need in order to test this theory?
we would need a lot of information about the cost structure of the business
Why is the theory difficult to test?
since the theory centres on the threat of entry and not necessarily entry itself
Even if there has not been new competition over time…
this does not necessarily mean the firm isn’t contestable
What suggests that an industry is contestable?
new firms entering the industry and low profits being made