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contestable market


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A market that has very low barriers to entry and exit; in a perfectly contestable market entry and exit are costless. In such a market potential as well as actual competition is a constraint on what the incumbent producers can charge, so that a competitive price is observed even when there is only one seller. Examples of highly contestable markets include low-cost airlines, internet service providers, electricity and gas suppliers, etc. In practice the existence of at least some sunk costs means that no markets are perfectly contestable.

Subjects: Social sciencesEconomics


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