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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 ...
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 in category "Market (economics)" The following 53 pages are in this category, out of 53 total. ... Contestable market; E. Economic equilibrium; Market economy;
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The same is likewise true of the long run equilibria of monopolistically competitive industries, and more generally any market which is held to be contestable. Normally, a firm that introduces a differentiated product can initially secure temporary market power for a short while (See Monopoly Profit § Persistence).
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These markets are also defined by the presence of monopolies, oligopolies and externalities within the market. The measure of competition in accordance to the theory of perfect competition can be measured by either; the extent of influence of the firm's output on price (the elasticity of demand), or the relative excess of price over marginal cost.