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.

Collins Dictionary of Economics, 4th ed. © C. Pass, B. Lowes, L. Davies 2005

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References in periodicals archive ?

Among the other elements is the need to reinforce competition and commitment to open, free and contestable markets to level the playing field and to promote innovation, consumer choice and access to high-quality financial services.

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The sectors under consideration are: electronics; auto and auto parts; aerospace parts and maintenance, repair, and operating supplies; tool and die; information technology and business process management and creatives; chemicals; shipbuilding and ship repair; furniture, garments and textile; agribusiness; parts components and inclusive business; efficiency seeking or competing in highly contestable markets; sectors in transition; innovation, research and development; social services; climate change; transport logistics and construction.

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These priority sectors include electricals and electronics; auto and auto parts; aerospace parts and MRO; tool and die; IT-BPM, creatives; chemicals; shipbuilding and ship repair; furniture, garments and textile; agri-business; parts components and inclusive business; efficiency seeking or competing in highly contestable markets; sectors in transition; innovation, research and development; social services; climate change; transport logistics and construction.

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All generators and suppliers of electricity in contestable markets do not need any national franchise.

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The theory of contestable markets is primarily associated with Baumol's work in the field of industrial organization.

In Memoriam

However, instead of directly addressing this condition, policy documents indicate that removing regulatory barriers to market entry is sufficient to create contestable markets. This idea is used clumsily in the example of the Australian wheat industry.

Contestability in the Australian wheat export industry

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--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;

Regulating over-the-top service providers in two-sided content markets: insights from the economic literature

These kinds of markets are called contestable markets.

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CONTESTABLE MARKETS, COMPETITION AND PRIVATE PROPERTY

Sunk costs and contestable markets

The theory of contestable markets developed by Baumol et al.

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