Contestability
- Created by: Jack Cohen
- Created on: 15-04-14 18:15
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- Contestability
- Contestable Market - Extent to which entry and exit are free & costless
- NO Barriers to Entry & Exit
- NO Sunk Costs
- Irrecoverable costs that occur from setting up a business
- Conditions for CM'S to work:
- 1) Access to same technology
- 2) Subject to the same regulations as incumbent firms
- 3) Incumbent firms must not have built up the advantages of brand loyalty
- 4) Have the same cost advantages
- In CM prices & costs are determined not only by the competition in market but the Potential Threat of Completion.(Completed)
- "HIT & RUN" OBJECTIVE
- Firms enter market - Made Abnormal profits and leave when these disappear
- Privatisation & Deregulation make market more Contestable
- Privatisation
- Sale of state owned business activity to the private sector
- Deregulations
- Removal of Rules or Regulations
- Example: All the market other than London + Northern Ireland were deregulated to make it more contestable + Competitive
- Example: UK Airline Industry = Deregulated. Increased Growth - More Competition so lower fares, increased service frequency, differentiated products + greater consumer choice
- Privatisation
- Fewer/Lower Risks
- Example: Manchester Buses - Bus Congestion + Actual or Potential Competition
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