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CONTESTABILITY

Statistics Directorate    
Definition:
A contestable market is one in which the following conditions are satisfied:

a) there are no barriers to entry or exit;

b) all firms, both incumbent and potential entrants, have access to the same production technology;

c) there is perfect information on prices, available to all consumers and firms;

d) entrants can enter and exit before incumbents can adjust prices.

In contrast to perfect competition, a contestable market may have any number of firms (including only one or a few) and these firms need not be price-takers. The analysis of contestable markets is designed for cases in which the existence of scale economies precludes a large number of competitors.

Source Publication:
Glossary of Industrial Organisation Economics and Competition Law, compiled by R. S. Khemani and D. M. Shapiro, commissioned by the Directorate for Financial, Fiscal and Enterprise Affairs, OECD, 1993.

Hyperlink:
http://www.oecd.org/dataoecd/8/61/2376087.pdf

Statistical Theme: Financial statistics

Created on Thursday, January 03, 2002

Last updated on Tuesday, April 16, 2013