8. Market Structures - Contestability of Markets Flashcards Preview

Economics - MicroEconomics > 8. Market Structures - Contestability of Markets > Flashcards

Flashcards in 8. Market Structures - Contestability of Markets Deck (4)
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1
Q

What are contestable and non-contestable markets?

A

Contestable = Markets that have a threat of competitionNon-Contestable = Markets that don’t have a threat of competition

2
Q

What are the features of perfectly contestable markets?

A

No entry/exit barriersPool of potential entrantsPerfect InformationExisting firms in the market vulnerable to ‘hit & run’ competition - firms get in and out quickly grabbing some SNP

3
Q

What are the consequences of a monopoly industry becoming contestable?

A

SNP wld attract loads of firms (no entry/exit barriers)So monopolist thinks I will reduce SNP so as not to attract new entry - reduce profits to normal profits (AR=AC) - called the entry limit price

4
Q

What are the evaluation points for contestable markets?

A

More contestable = more competitive market outcomes - positivePrice driven down, Quantity upAllocative and potentially productive efficiency createdIncrease in consumer surplusBUT;we lose some of the dynamic efficiency stemming from SNP

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