Contestable Markets (Edexcel A-Level Economics A): Flashcards

Market where entry threat forces only normal profits

William Baumol

Unrecoverable expenses if firm exits market

Enter for short-run profit, exit without cost

Price equals average cost

Not achieved (price > marginal cost)

Unlikely to persist due to entry threat

May be hindered (low profit limits R&D funding)

Reduces barriers, improves consumer information

Price below profit-max level to deter entry