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Contestable Markets

1. Definition

   • A contestable market is a market where a new entrant has access to production techniques, free to advertise to customers and entry decisions can be reversed.

2. Barriers to Entry

   • There are no barriers to entry

3. Graph

4. Pure Contestability

   • Perfect Information and the ability of all suppliers to make use of the best available production technology in the market
   • The freedom to market/advertise and enter the market with a competing product
   • The absence of sunk costs - reduces the risk of entering the market

5. Why are markets becoming more contestable

   • De-regulation of markets
     • Recent deregulation includes the liberalisation of telecommunications and postal services as part of the European Union competition initiatives
   • Competiton Policy
     • Tougher laws against predatory behaviour by existing firms are designed to make markets more contestable
   • European Single Market
     • The development of the single market has opened it up for member nations
   • Technological changes
     • The impact of new technology makes it cheaper to enter
   • Entrepreneurial Zeal
     • Entrepreneurs who don't accept that a current market will be at full potential and they will enter the markets themselves, creating better innovation

Images and files in the map