Th3.4: Reasons for Increasing Contestability Flashcards

1
Q

The recession has meant that entrepreneurs…

A

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

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2
Q

What has the deregulation of markets allowed?

A

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

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3
Q

What has the European single market done?

A

opened up new markets for firms and so these firms can enter into the market, making them contestable

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4
Q

What has globalisation done?

A

globalisation in general has increased contestability, since foreign firms can enter domestic markets

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5
Q

What have changes in technology done?

A

reduced entry costs as capital is more mobile

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6
Q

What has the rise of internet shopping done?

A

means that firms no longer have to find retailers for their products and so can easily enter the market and sell their goods online

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7
Q

What would we need in order to test this theory?

A

we would need a lot of information about the cost structure of the business

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8
Q

Why is the theory difficult to test?

A

since the theory centres on the threat of entry and not necessarily entry itself

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9
Q

Even if there has not been new competition over time…

A

this does not necessarily mean the firm isn’t contestable

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10
Q

What suggests that an industry is contestable?

A

new firms entering the industry and low profits being made

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