Contestable markets Flashcards
(14 cards)
what type of competition do contestable markets face
actual and potential
what do entrants have free access to
production techniques and technology
low or high barriers
low barriers to entry and exit
what is consumer loyalty like
low
what happens to the number of firms in the market
they vary
are firms likely to be allocatively efficient in contestable markets
yes
where do firms operate in LR
at the bottom of the LRAC curve, making them productively efficient
who does the threat of new entrants affect
firms and existing competitors
what is hit and run competition
new entrants entering the market due to the easy access, taking the supernormal profits, then leaving
what market structure is similar to highly contestable markets
perfectly competitive markets, as they act as though there is a lot of comp
explain the profitability of contestable markets
supernormal in SR, only normal in LR, so firms enter the market to take advantage of the supernormal prof in SR
how do firms prevent potential comp
by only making normal profit in the short run
what happens with no supernormal profit
there is no incentive for new firms to enter, even if barriers are low
