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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.


Statistical Theme: Financial statistics

Created on Thursday, January 3, 2002

Last updated on Tuesday, April 16, 2013