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Contestable markets are characterized by "hit and run" competition; if a firm in a contestable market raises its prices so as to begin to earn excess profits, potential rivals will enter the market, hoping to exploit the high price for easy profit. When the original incumbent firm(s) respond by returning prices to levels consistent with normal ...
The market structure determines the price formation method of the market. Suppliers and Demanders (sellers and buyers) will aim to find a price that both parties can accept creating a equilibrium quantity. Market definition is an important issue for regulators facing changes in market structure, which needs to be determined. [1]
Two different types of cost are important in microeconomics: marginal cost and fixed cost.The marginal cost is the cost to the company of serving one more customer. In an industry where a natural monopoly does not exist, the vast majority of industries, the marginal cost decreases with economies of scale, then increases as the company has growing pains (overworking its employees, bureaucracy ...
Few firms in the market: When there are few firms in the market, the actions of one firm can influence the actions of the others. [25] Abnormal long-run profits: High barriers of entry prevent sideline firms from entering the market to capture excess profits. If the firms are colluding in the oligopoly, they can set the price at a high profit ...
A major topic of debate is how much a given market can be considered to be a "free market", that is free from government intervention. Microeconomics traditionally focuses on the study of market structure and the efficiency of market equilibrium ; when the latter (if it exists) is not efficient, then economists say that a market failure has ...
Profit can, however, occur in competitive and contestable markets in the short run, as firms jostle for market position. Once risk is accounted for, long-lasting economic profit in a competitive market is thus viewed as the result of constant cost-cutting and performance improvement ahead of industry competitors, allowing costs to be below the ...
Pages for logged out editors learn more. Contributions; Talk; Contestable markets
"Contestable markets refer to a market situation where there are very few, perhaps even only one, firm yet perfectly competitive market outcomes may still be observed (as opposed to expected monopolistic or oligopolostic outcomes)." To me that was a pretty poor opening sentence for an encyclopedia entry.