Contestable Markets

• Characteristics of a perfectly contestable market:

  • No barriers to entry or exit
  • Large pool of potential new entrants
  • Perfect information
• Some examples of making the markets more contestable is how the global hotel market has changed dramatically due to AirBNB making the market more contestable or airlines
• Invention is the creation of a new idea without it necessarily becoming a commercial reality
• Innovation is the process through which an invention turns into commercial reality
• 5 main effects of technological change:

  • Increased productivity
  • Decreased costs
  • Increased contestability
  • New methods of production
  • New products and services
• Creative destruction is a term by Joseph Schumpeter that refers to the continuous process by which 'disruptive' new innovations replace existing ones, making them obsolete
• Evaluation of contestable markets:

  • Whether the outcome is beneficial depends on how significant the increase in contestability is
  • Markets may not be contestable in the long term
  • Contestable markets may result in creative destruction
  • Regulation must exist to prevent entry limit pricing