contestable market

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contestable market

a MARKET where new entrants face costs similar to those of established firms and where, on leaving, firms are able to recoup their capital costs, less depreciation. Consequently, it is not possible for established firms to earn ABOVE NORMAL PROFIT as this will be eroded by the entry of new firms, or, alternatively, the mere threat of such new entry may be sufficient to ensure that established firms set prices that yield them only a NORMAL PROFIT return. Perfectly competitive markets (see PERFECT COMPETITION) are all contestable, but even some oligopolistic markets (see OLIGOPOLY) may be contestable if entry and exit are easily affected.

In recent times many markets have been opened up by a number of developments, including increasing international competition as trade barriers have been reduced, the introduction of FLEXIBLE MANUFACTURING SYSTEMS and ECOMMERCE trading on the INTERNET. See WORKABLE COMPETITION, CONDITION OF ENTRY, BARRIERS TO ENTRY, BARRIERS TO EXIT.

References in periodicals archive ?
The theory of contestable markets is primarily associated with Baumol's work in the field of industrial organization.
However, instead of directly addressing this condition, policy documents indicate that removing regulatory barriers to market entry is sufficient to create contestable markets.
The terms of the November proposal were lower than the April proposal as the board of Iluka determined that it was necessary to reassess the valuation of Kenmare in order to ensure that any transaction continued to meet Iluka's financial merit criteria, given a deteriorating global market backdrop which impacted Iluka's view of appropriate risk weightings, and a recent significant drop in sulphate ilmenite prices in contestable markets.
Firms competing in open, contestable markets are more productive and thereforemore likely to export.
content markets (indeed one and two-sided markets) may in fact be contestable markets, questioning the use of ex ante regulation in the first place;
These kinds of markets are called contestable markets.
Section 45 of the law states: "No participant in the electricity industry may engage in any anticompetitive behavior including, but not limited to, crosssubsidization, price or market manipulation, or other unfair trade practices detrimental to the encouragement and protection of contestable markets.
CONTESTABLE MARKETS, COMPETITION AND PRIVATE PROPERTY
The threat of intervention in the theory of contestable markets is considered affecting the production and prices decisions made by incumbent firms in an industry.
Contestable Markets in the Dakotas: Credit Cards Charters
This paper uses experiments to evaluate the effects of sunk-entry-costs on the entry initiatives of potential entrants and the pricing responses of incumbent monopolists in contestable markets.
So, the preliminary analysis of the basic theoretical conditions of the Concept of Contestable Markets allows us to doubt that every compulsory proviso of the PAI contestability holds in Russia.