Contestable Markets

Contestable Markets

1. Why markets are becoming more contestable

   • Entrepreneurs
   • De-regulation of markets
     • Opening up of markets to competition
   • Competition policy
     • Laws acting against predatory pricing
   • European single market
     • Opened up markets for member nations
     • E.g. Western European clothing retailers onto the UK high streets and shopping malls
   • Technological change
     • New technology has brought down some of the entry costs

2. A new entrant has access to production techniques, advertising to customers and entry decisions can be reversed

   • must be low barriers to entry and exit
     • For a perfectly contestable market barriers to entry and exit must be costless