contestable markets

Question 1

Allocative efficiency

Answer 1

Achieved in a contestable market if existing firms price at marginal cost

Question 2

Asymmetric information advantage

Answer 2

When incumbent businesses know more about their industry than potential entrants

Question 3

Brand loyalty

Answer 3

Consistent preference for one brand over others

Question 4

Challenger brand

Answer 4

A rival product that seeks to disrupt sales of established products by being innovative or using a different business model

Question 5

Creative destruction

Answer 5

The upheaval of the established order in the pursuit of innovation

Question 6

first mover advantage

Answer 6

gains from being early into an industry and achieving economies of scale

Question 7

Hit and run entry

Answer 7

Where new firms join an industry to cream off some supernormal profits of incumbents and then exit

Question 8

Market liberalisation

Answer 8

opening up an industry to new competitors

Question 9

Patent

Answer 9

A legal barrier to contestability that allows a firm to protect intellectual property for some years

Question 10

Perfectly contestable market

Answer 10

An industry in which entry and exit are costless

Question 11

Platform business

Answer 11

A business model that creates value by facilitating exchanges between two or more consumers and producers

Question 12

Process innovation

Answer 12

Change in the way a product or service is conceived, manufactured or distributed

Question 13

Product innovation

Answer 13

Small, subtle changes to the characteristics and performance of a good or a service

Question 14

sunk cost

Answer 14

A cost that has been committed and cannot be recovered if a firm leaves a market

Question 15

Switching costs

Answer 15

Expenses that buyers face if they decide to change suppliers