3.4.7 - Contestability

    Cards (17)

    • What does contestability refer to in a market?
      Ease of new firms entering and exiting
    • How does a contestable market affect existing firms?
      It forces them to act competitively
    • What are low barriers to entry?

      Conditions that allow easy market entry
    • What role do antitrust laws play in contestability?
      They prevent anti-competitive practices
    • What is the effect of high barriers to entry on contestability?
      They reduce contestability in the market
    • What is the impact of low barriers on prices and efficiency?
      They lead to lower prices and higher efficiency
    • What are the characteristics of a contestable market?
      • Low barriers to entry
      • Perfect information
      • Ease of market entry and exit
      • Potential competition focus
    • What is meant by 'hit and run' in contestability?
      Firms entering and exiting quickly
    • How do sunk costs affect contestability?
      High sunk costs reduce market entry
    • What is a natural monopoly?
      A market dominated by one firm
    • What is the relationship between competition and efficiency?
      Competition encourages firms to be efficient
    • How do liberalization policies affect market entry?
      They reduce barriers to market entry
    • What is the effect of churning in a contestable market?
      It indicates firms are entering and exiting
    • What is the significance of perfect information in contestability?
      It allows informed decisions by firms
    • How do regulations affect contestability?
      Regulations can create barriers to entry
    • What is the overall effect of contestability on market prices?
      It generally leads to lower market prices
    • What are the implications of contestability for firms in a market?
      • Firms must keep prices low
      • Firms must produce efficiently
      • Firms may innovate to deter entrants