Contestable Markets

Contestable Markets

1. Definition: A new entrant has access to production techniques, free to advertise and entry costs can be reversed.

2. Barriers to entry

3. Pure contestability has three conditions

   • Perfect infomation and the oppitunity for all suppliers to have access to the best production techniques available for their market
   • FREEDOM: free to advertise and enter the market
   • No sunk costs, this means there will be a smaller risk into entering the market

4. Why are markets becoming more contestable

   • Entrepreneurial zeal: There will be Entrepenuers who will not accept that a current market is at its full potential, therefore they will enter the market themselves, creating higher innovation
   • Deregulation of markets: opening up markets by removing barriers to entry, an example of this is the liberisation of the telecomunications industry