the degree to which a market has the potential for new firms to enter
Perfect contestable- no barriers to entry and exit
Not contestable- perfect barriers to entry and exit
contestable market characteristics?
Freedom of entry/ exit
A pool of potential entrants
'Hit and run' entry eg xmas retailers
perfect knowledge of the industry
Goods may be homogenous or differentiated
no restriction on the number of firms
How can monopolies be productive and allocative efficient?
If they charge high prices, potential competition will enter and undercut the price. So the monopolist sets a price to make normal profits only
If they act inefficiently where AC is not minimised, potential competition will produce more efficiently and charge a lower price, so they become productively efficient
