In economics, a contestable market is a market served by only one firm, but with mandated "competitive" pricing, so as to escond the monopoly held by said firm on said market. Economics is the social science that studies the production distribution, and consumption of goods and services. Sao Paulo Stock Exchangejpg|thumb| Virtual market arena where buyer and seller are not present and trade via intemediates and electronical information In Economics, a monopoly (from Greek monos, alone or single + polein, to sell exists when a specific individual or enterprise has sufficient Its fundamental feature is low barriers to entry and exit; a perfectly contestable market would have no barriers to entry or exit. In Economics and especially in the theory of Competition, barriers to entry are obstacles in the path of a firm which wants to enter a given Market In Economics, barriers to exit are obstacles in the path of a firm which wants to leave a given Market or Industrial sector. Contestable markets are characteristed by 'hit and run' entry. If a firm in a market with no entry or exit barriers raises its prices above marginal cost and begins to earn abnormal profits, potential rivals will enter the market to take advantage of these profits. The theory of the firm consists of a number of economic theories which describe the nature of the firm company, or Corporation, including its existence In Economics and Finance, marginal cost is the change in Total cost that arises when the quantity produced changes by one unit In Economics supernormal profit, also called Economic rent, abnormal profit or pure profit or excess profits, is a When the incumbent firm(s) respond by returning prices to levels consistent with normal profits the new firms will exit. In this manner even a single-firm market can show highly competitive behaviour.
The theory of contestable markets has been used to argue for weaker application of antitrust laws as simply observing a highly concentrated or monopoly market does not mean that the firm is harming consumers by earning super-normal profits. The applicability of the theory to real world situations has been questioned, however, particularly as there are very few markets which are completely free of sunk costs and entry and exit barriers. In Economics and business decision-making sunk costs are Costs which cannot be recovered once they have been incurred
Low cost airlines are commonly referred to as an example of a contestable market. Entrants have the possibility of leasing aircraft and should be able to respond to high profits by quickly entering and exiting. In practice there may be barriers to entry and exit in the market associated with terminal leases and availability and predatory pricing by incumbents, signalled through built-in overcapacity. Predatory pricing (also known as destroyer pricing) is the practice of a firm selling a product at very low price with the intent of driving competitors out of the Market
See also
References
- William J. Baumol, John C. In Economics and Business ethics, a coercive monopoly is a business concern that prohibits competitors from entering the field with the natural result being that Monopolistic competition is a common Market form. Many markets can be considered monopolistically competitive often including the markets for Restaurants, Cereal In Neoclassical economics and Microeconomics, perfect competition describes a market in which no buyer or seller has Market power. William Jack Baumol (born February 26 1922) is a New York University Economics professor (although he is also affiliated with Princeton Panzar, & Robert D. Willig (1982). Contestable Markets and the Theory of Industry Structure.
- John C. Panzar (1987). "competition and efficiency," The New Palgrave: A Dictionary of Economics, v. The New Palgrave A Dictionary of Economics (1987 is a 4-volume reference edited by John Eatwell, Murray Milgate and Peter Newman 1, pp. 543-44.
- George J. Stigler (1987). George Joseph Stigler ( January 17, 1911 December 1, 1991) was a U "competition," The New Palgrave: A Dictionary of Economics, v. 1, pp. 531-46.
- Antitrust by Alan Greenspan (arguing against the existence of anti-trust laws based on theory that government is solely responsible for coercive monopoly)
Dapyx Software network: MP3 Explorer | Ebook Manager | Zenithic