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  • Anforme What is Meant by a Contestable Market?

Anforme What is Meant by a Contestable Market?

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Mohammed Tanweer, Head of Careers and teacher of economics and politics at Merchant Taylors’ School, Northwood, offers examples to show that the contestability of a market is not a fixed state but is constantly changing.

Summary of Key Points:

  • A contestable market has low barriers to entry and exit e.g. low sunk costs which are costs that cannot be recovered upon exit of an industry.
  • Contestability refers to the threat of competition, rather than actual competition itself.
  • The theory of contestable markets implies that a firm can be a monopoly but still achieve efficiency.
  • The main barriers to entry and exit include advertising costs, brand loyalty, start-up costs, legal barriers, contracts, and exclusive rights.
  • Contestability is not a fixed state and in many markets has increased over time.

This article is from ET volume 17 Issue 2.

Mohammed Tanweer, Head of Careers and teacher of economics and politics at Merchant Taylors’ School, Northwood, offers examples to show that the contestability of a market is not a fixed state but is constantly changing.

Summary of Key Points:

  • A contestable market has low barriers to entry and exit e.g. low sunk costs which are costs that cannot be recovered upon exit of an industry.
  • Contestability refers to the threat of competition, rather than actual competition itself.
  • The theory of contestable markets implies that a firm can be a monopoly but still achieve efficiency.
  • The main barriers to entry and exit include advertising costs, brand loyalty, start-up costs, legal barriers, contracts, and exclusive rights.
  • Contestability is not a fixed state and in many markets has increased over time.

This article is from ET volume 17 Issue 2.

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