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Topic: Contestable markets


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  Contestable markets: Definition and Links by Encyclopedian.com
...Contestable markets Contestable markets A contestable market is characterized...and goodwill.
A contestable market is characterized by free entry and free exit.
But the theory does vividly illustrate that market structure and incumbent behaviour cannot be deduced simply by counting the number of firms in the industry.
www.encyclopedian.com /co/Contestable-markets.html   (288 words)

  
 Revision Guru
The contestable markets approach to competition represents an alternative to the neo-classical theory of the firm.
Contestability is a measure of the extent to which a market is open to new entry.
To the extent that contestable markets theory is correct in assuming that the threat of competition is a key determinant of the behaviour of existing firms, it reinforces the link between barriers to entry and profit, but removes the link between barriers to entry and market concentration.
www.revisionguru.co.uk /economics/contest.htm   (1336 words)

  
 CEPIS/OPS-Box 4. The theory of contestable markets   (Site not responding. Last check: 2007-10-22)
Contestability can also be encouraged through the promotion of leasing and the development of a domestic market for reselling capital equipment.
For this reason, as markets expand, governments that choose private participation would be well advised to encourage the emer gence of competing companies, rather than leave sector operation in the hands of a single private or state­owned company.
The existence of the regulatory instrument itself and the longevity of such instrument represent a barrier to free entry and limit the validity of the contestable markets theory in the sector.
www.cepis.org.pe /muwww/fulltext/rpp/rppbox04.html   (1271 words)

  
 Contestable market - Wikipedia, the free encyclopedia
In economics, a contestable market is a market in which competitive pricing can be observed, even though there may be only one firm serving the market, so that it would normally be classed as a monopoly.
Contestable markets are characteristed by 'hit and run' entry.
The theory of contestable markets has been used to argue for weaker application of anti-trust laws as simply observing a highly concentrated or monopoly market does not mean that the firm is harming consumers by earning super-normal profits.
en.wikipedia.org /wiki/Contestable_market   (351 words)

  
 Economic Analysis and Statistics - Discussion Papers
A market is contestable if barriers to entry are sufficiently low that incumbent firms must behave competitively to forestall entry by rival firms.
Among other things, pricing in a contestable market is competitive; in other words, prices are maintained at levels that would prevail if a very large number of sellers participated in the market.
Firms in contestable markets for technologically advanced products and services must also constantly strive to improve the products or services they offer (and to introduce new products at a satisfactory rate) and/or to reduce their operating costs; otherwise, they will be overtaken by new rivals in the marketplace.
strategis.ic.gc.ca /epic/internet/ineas-aes.nsf/en/ra01573e.html   (1100 words)

  
 Contestability and Economic Integration in the Western Hemisphere   (Site not responding. Last check: 2007-10-22)
Using the theory of contestable markets, it presents an analytical framework that shows the requirements for achieving coherence among the different policies that affect the competition process.
Another normative prescription is that the contestable markets theory does not support the view that trade liberalization is a prerequisite for the international harmonization of competition policies.
So, according to the contestable markets theory, antitrust and industrial policies share, in principle, mutually reinforcing objectives, under the proviso that trade restrictions be excluded from the set of policy options.
www.sice.oas.org /compol/Articles/contest.asp   (4906 words)

  
 Monopoly - Contestable Markets
In this case the market is a contestable market.
In a contestable market there are no structural barriers to the entry of firms in the long-run.
Market contestability requires there are few sunk costs.
www.tutor2u.net /economics/content/topics/monopoly/contestable_markets.htm   (885 words)

  
 ASIL Insight--Multilateral Trading System
The theory of contestable markets was advanced by William J. Baumol, an economist, in 1982.
In particular, two new ideas are emphasized: first, a market is deemed internationally contestable when the conditions of competition allow unimpaired market access for foreign goods, services, ideas, investments, and business people; second, the investment mode of doing business is as important as trade because trade and investment are complementary means of contesting markets.
The theory of contestable market holds that ease of entry and exit to markets (without intervening anticompetitive barriers due to government of private restrictions) leads to efficiency, even if there are only a few firms in an industry, because they will be forced to price their products competitively because of the ease of market entry.
www.asil.org /insights/insight2.htm   (2153 words)

  
 Entry Deterrence and Contestable Markets   (Site not responding. Last check: 2007-10-22)
The threat of entry underlies the theory of market contestability.
Firms can enter or leave a contestable market when the cost of entry is insignificant.
In the extreme case of perfect contestability, firms can enter and exit at zero cost, and the market price would be the same as the perfectly competitive price.
www.ux1.eiu.edu /~cfmqd/ch12B/tsld018.htm   (80 words)

  
 Floor - economen jargon - contestable market
A contestable market requires barriers to entry to be low, and a perfectly contestable market requires a total absence of barriers to entry.
Leaving the market means that all the money spent creating the brand may be lost – although even brand names can be sold.
The theory of contestable markets has been used as a defence for companies with established monopolies.
www.floor.nl /economie/contestablemarket.html   (613 words)

  
 [No title]
Contestability analysis, a recent arrival in the literature of economic theory, has rapidly aroused attention among those involved in determining policy related to economic regulation and antitrust activity.
Benefits that perfect contestability offers to society include: (a) absence of excessive (monopolistic) prices or profits, (b) absence of inefficiency or waste, (c) absence of cross-subsidy or predatory pricing, and (d) "Pareto optimality" in pricing--that is, pricing consistent with efficiency in the allocation of economic resources to serve the desires of consumers.
To the extent that the markets for particular infrastructural services are contestable because the sunk costs involved in capital investment are low, it should be possible to liberalize restrictions against the entry and exit of private entrepreneurs.
www.worldbank.org /html/fpd/urban/publicat/rd-ou3.htm   (1099 words)

  
 Contestable Markets - Activity
In reality, there is unlikely to be such a thing as a perfectly contestable market but some industries may exhibit many of the key characteristics of such an industry.
The whole market might be classed as the 'market for airline travel', but within that area there may be lots of what could be called 'micro-markets', each of which is subject to competition.
If the market is characteristic of a contestable market, such regulation might be deemed as being unnecessary, given the conclusions drawn by Baumol of this type of market and which have been highlighted at the beginning of this article.
www.bized.co.uk /educators/16-19/economics/firms/activity/contest.htm   (1344 words)

  
 Contestable Markets - Lesson Plan
The intention is to encourage students to develop analysis and evaluation as they consider how far the market exhibits the characteristics of a contestable market.
The reason for this is that firms may see each route as a market in itself and as such could enter and leave that route relatively easily, switching its capital assets with little or no cost.
This is aimed as acting as a primer for introducing the theory of contestable markets.
www.bized.co.uk /educators/16-19/economics/firms/lesson/contest.htm   (650 words)

  
 Opportunities in the Food Markets of Brazil
Market research to determine what actions must be taken to make the Canadian products competitive in Brazil's "up-markets." If a research-price-work-up indicates that it is a contestable market, take additional actions to begin exporting to Brazil.
Market research to determine what needs to be done to make Canadian wine competitive in Brazil's "up-markets." If a research-price-work-up indicates that it is a contestable market, take action to begin exporting to Brazil.
A market study to determine why we are losing market share so quickly may provide insight into how to slow Canada's loss of market share and eventually maintain a market share in a smaller but more stable market.
atn-riae.agr.ca /latin/3795_e.htm   (10729 words)

  
 Summer 1998: Central Business Review   (Site not responding. Last check: 2007-10-22)
It is noted that the European markets increased their correlation with the SP500 just as the Far East/Pacific markets correlations declined versus the SP500.
The "contestable markets" theory is examined for banking markets within those non-MSA parishes and counties of Louisiana, Oklahoma, and Texas where thrifts potentially may act as competitors.
The statistical results of an error components model, estimated for the years 1988 through 1990, indicate that the presence of thrifts (as measured by deposit market share) does not significantly affect bank earnings, a finding that is at variance with the underlying assumptions of the theory.
www.busn.ucok.edu /cbreview/98sum   (801 words)

  
 [No title]   (Site not responding. Last check: 2007-10-22)
Contestable Markets are markets where barriers to entry and exit do not exist.
Our 3 categories of market failure constitute situations where resources are not going to their most highly valued uses.
I argue that we try to apply the MMT to political markets, then democracy fails as a means to efficiently allocate resources.
www.kean.edu /~dmackenz/classes/IMORS.doc   (1368 words)

  
 Rokowsky   (Site not responding. Last check: 2007-10-22)
Opening national markets to global competition as the principal objective of trade liberalization is solidly rooted in the history of economic thought.
The efficient operation of a market also requires the existence of some basic rules, such as rules concerning permissible forms of competitive behavior, the transparency of laws and regulations and due process with respect to the enforcement and adjudication of such laws and regulations.
The use of a contestable market paradigm in the trade field would serve as a criterion for deciding when government intervention in the form of international disciplines was needed to assure competitive entry of foreign firms into nationally regulated markets.
www.commercialdiplomacy.org /articles_news/rokowsky.htm   (5102 words)

  
 bp_casefair_econf_7e|Monopolistic Competition and Oligopoly|Oligopoly Models|Contestable Markets
The final and most competitive model is that of a perfectly contestable market.
A contestable market looks like a monopoly or oligopoly but, in fact, is much more competitive.
If a market is making zero profit, no firms will enter it, regardless of whether there are 1 or 1 million firms already in the market.
wps.prenhall.com /bp_casefair_econf_7e/0,8233,2031312-,00.html   (238 words)

  
 OECD   (Site not responding. Last check: 2007-10-22)
The efficient operation of a market also requires the existence of some basic rules regarding the operation of the market, such as rules concerning permissible forms of competitive behavior, the transparency of laws and regulations and due process with respect to the enforcement and adjudication of such laws and regulations.
The basic argument put forward by proponents of a "contestable market" approach to the regulation of utilities was that as long as an industry was open to the potential entry to new firms, the presence of a large number of firms was not essential for the achievement of a Pareto-optimal outcome.
In contrast, the use of a contestable market paradigm in the trade field would serve as a criterion for deciding when government intervention in the form of international disciplines was needed to assure competitive entry of foreign firms into nationally regulated markets.
www.commercialdiplomacy.org /articles_news/oecd.htm   (3870 words)

  
 Is Competition Lacking In Generation? (And Why It Should Not Matter), By Judah Rose, Shanthi Muthiah, and Maria Fusco, ...
In other markets, where the concentration problem does not yet seem as pressing, mergers and acquisitions threaten to raise levels of concentration of ownership in generation.
While we have not examined every market, we expect nearly all markets to be in balance within 3 to 6 years.
Thus, would-be competitors in generation markets should concentrate their focus on market power in transmission \(em not generation \(em and on barriers to entry, such as permitting obstacles or factors that might discourage long-term contracts.
www.pur.com /pubs/2129.cfm   (3199 words)

  
 Monopoly   (Site not responding. Last check: 2007-10-22)
Advocates of free markets, such as libertarians, assert that a natural Monopoly is a practical impossibility, and, given that a Monopoly is a persistent rather than a transient situation, that there is no historical precedent of one ever existing.
A local monopoly is a Monopoly of a market in a particular area, usually a town or even a smaller locality: the term is used to differentiate a Monopoly that is geographically limited within a country, as the default assumption is that a Monopoly covers the entire industry in a given country.
The theory of contestable markets argues that in some circumstances (private) Monopolies are forced to behave as if there were competition, because of the risk of losing that Monopoly to new entrants, or because of the availability in the longer-term of Substitutes in other markets.
monopoly.iqnaut.net   (2265 words)

  
 CONTESTABLE MARKETS   (Site not responding. Last check: 2007-10-22)
A market in which firms can enter and leave without incurring large costs.
The few firms in a contestable market will be continually threatened by the entry of new firms, so prices and profits will be relatively low.
In a perfectly contestable market, firms can enter and exit at zero cost.
oregonstate.edu /instruct/econ201/osman/Lec14/sld038.htm   (65 words)

  
 [No title]   (Site not responding. Last check: 2007-10-22)
It suggests that markets where there is high concentration or even monopoly, the incumbent firm(s) may not be able to exercise this apparent market power if the market is under significant threat of competition, in other words if it is contestable.
If a market is contestable then the threat of competition exercises the same constraints as would actual competition.
The theory of contestable markets highlights the role of exit costs as a potential barrier to entry (if it is costly to exit perhaps firms will be deterred from entry).
www.uel.ac.uk /elbs/undergraduate/economics/pm/FE3009RetrievalEssay.doc   (718 words)

  
 EconEdLink | EconomicsMinute | Airline Mergers, Software Industry Monopolies: Contestable Markets?
The theory of contestable markets postulates that firms in imperfectly competitive markets may act as though they operate in a purely competitive market when entry and exit are perfectly (or nearly) costless.
Students will read an overview of the contestable markets hypothesis and determine whether or not it is applicable to the airline mergers and to the Microsoft antitrust case.
If entry and exit were costly, the market would not be contestable and the two incumbent airlines might realize substantial economic profits from their protected market position.
www.econedlink.org /lessons/index.cfm?lesson=EM22&page=teacher   (652 words)

  
 Yale Law Journal | A. Edlin, Stopping Above-Cost Predatory Pricing
A contestable market behaves like a competitive market even when only one incumbent serves the market, because competitors wait in the wings to enter if the incumbent prices high.
The great advantage of a contestable market is that low prices are ensured by the decisions of market participants.
The market price is never high, because if it were, competitors would enter and drive it down.
www.yalelawjournal.org /archive_abstract.asp?id=293   (851 words)

  
 Untitled Document   (Site not responding. Last check: 2007-10-22)
The Australian Grain Exporters Association (AGEA) was formed in 1980, by a group of private grain exporters to promote their philosophy that competition, represented by open and contestable markets, is the most effective and efficient means of delivering the maximum benefits to the grains industry, and the community as a whole.
The members of the AGEA are active participants in both domestic and export grain markets, with a particular focus on providing efficient access to international markets.
The A G E A claims this is due to restrictions on free market access that is present through Federal and State legislation.
www.agea.com.au   (368 words)

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