contestability

• What does the term "contestability" refer to in economics?

  It refers to the ease of entry and exit in a market
• How does contestability affect market prices?

  It can lead to lower prices due to competition
• What are the implications of high startup costs in a market?

  • Higher barriers to entry
  • Fewer new entrants
  • Increased risk for potential competitors
• What is the impact of incumbents on new market entrants?

  Incumbents can create barriers for new entrants
• What is the relationship between contestability and perfect competition?

  Contestability leads to conditions similar to perfect competition
• How does the presence of supernormal profits affect market entry?

  It attracts new firms to enter the market
• What is a potential consequence of predatory behavior in markets?

  It can deter new competitors from entering
• What are the characteristics of a contestable market?

  • Low barriers to entry and exit
  • Potential for new entrants
  • Competitive pricing
  • Efficient resource allocation
• What happens to market dynamics when incumbents maintain normal profits?

  It indicates no significant threat from new entrants
• What is the effect of increased competition on prices?

  Prices tend to decrease
• How does contestability influence consumer welfare?

  It generally improves consumer welfare through lower prices
• What are the implications of contestability for firms already in the market?

  • Firms must remain efficient
  • They may lower prices to deter entrants
  • They need to innovate to maintain market share