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What contestability adds

What contestability adds

Flow diagram showing low entry barriers, low exit barriers and low sunk costs creating a threat of entry that leads to lower prices, higher efficiency, more innovation and lower long-run supernormal profit

Contestability asks not just how many firms are in a market now, but how easily new firms could enter and leave. A market can have one dominant firm and still behave competitively if the threat of entry is credible.

3.4.7 Contestability Lesson

  1. A Level
  2. /Economics
  3. /3.4.7 Contestability