Contestability

Question 1

What is contestability?

Answer 1

The degree of threat of competition in a market - in a highly contestable market the threat is likely high as barriers to entry will be lower

Question 2

What are the features of contestable markets ?

Answer 2

• number of firms in the industry varies from one to many firms with no single firm having significant shore of the market.
• freedom of entry and exit from the market
• firms compete with each other and do not collude to fix prices
• firms may produce homogeneous goods or they may produce branched goods
• there is perfect knowledge in the industry

Question 3

How can you encourage contestability?

Answer 3

Lowering barriers to entry! - (only answer really)