Contestable And Non-Contestable Markets Flashcards Preview

Economics REVISION 5 (micro) > Contestable And Non-Contestable Markets > Flashcards

Flashcards in Contestable And Non-Contestable Markets Deck (14)
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1
Q

What isn’t considered important within a contestable market

A

The number of firms and size distribution of firms

2
Q

What is more focus on within contestable markets

A

Credible threat of entry from rivals

3
Q

Are all markets contestable?

A

Yes - to a degree

4
Q

Example of contestable markets

A

Fast food industries

5
Q

4 key conditions for a contestable market

A
  1. Pool of new businesses who are ready to enter the market
  2. No entry / exit costs
  3. Access to technology
  4. Consumers are willing to change suppliers
6
Q

Contestability of a market with high sunk costs

A

Less contestable

7
Q

What do high sunk costs act as

A

A barrier to entry of new firms because they risk making significant losses if they decide to exit the sector

8
Q

What are asset write offs

A

Wiring off the value of a machine etc

9
Q

What are closure or project cancellation costs

A

Costs from ending leases / debts etc

10
Q

What is a hit and run entry

A

When a business enters an industry to take advantage of temporarily high (supernormal) profits

11
Q

Allocative efficient and contestable markets

A

The more contestable, the more likely than an allocatively efficient outcome is achieved

12
Q

What firms are vulnerable to hit and run competition

A

Firms making super normal profits

13
Q

What does a highly contestable market resemble

A

Perfect competition - regardless of the number of firms, since incumbents behave as if there were intense competition

14
Q

Where is price and output likely to be in a contestable market

A

Somewhere between the profit-maximising and normal profit equilibrium. The more contestable the market, the higher the likelihood that price will be closer to normal profits only.