Turn on thread page Beta
    • Thread Starter
    Offline

    0
    ReputationRep:
    What are the main differences between them?

    I know the conditions for both, but can't a contestable market also be a perfectly competitive and vice versa?

    Can someone expand
    Offline

    0
    ReputationRep:
    A contestable market is the one that has no barriers to entry, no sunk costs and makes only normal profit.
    A perfectly competitive market can be a contestable market as it has no barriers to entry and many sellers can join it. in addition it has also no sunk costs. But it can only be a contestable market to some extent and you have to evaluate this on the info given to you !
    Offline

    2
    ReputationRep:
    In a contestable market, it is the threat of potential competition that influence's a firm's behaviour, whilst that competition exists in a perfectly competitive market. Also, in a perfectly contestable market, the size of the firm or firms is irrelevant.
    • PS Helper
    Offline

    4
    ReputationRep:
    PS Helper
    A perfectly competitive market is an contestable market.
    A contestable market isn't always a perfectly competitive market.
    Offline

    0
    ReputationRep:
    Perfectly competitive markets make supernormal profits in the short run.

    Contestable markets have sunk costs, which a perfectly competitive market doesn't have.
    • PS Helper
    Offline

    4
    ReputationRep:
    PS Helper
    (Original post by GooneR RoB)
    Perfectly competitive markets make supernormal profits in the short run.

    Contestable markets have sunk costs, which a perfectly competitive market doesn't have.

    what? no.
    Offline

    1
    ReputationRep:
    its easy to confuse the 2, perfect competition produces homogeneous goods, contestable markets produce homogeneous and heterogeneous goods.

    (Original post by georginak27)
    A contestable market is the one that has no barriers to entry, no sunk costs and makes only normal profit.
    A perfectly competitive market can be a contestable market as it has no barriers to entry and many sellers can join it. in addition it has also no sunk costs. But it can only be a contestable market to some extent and you have to evaluate this on the info given to you !
    this is only an assumption, it's not actually true, especially the part about sunk costs.

    and another thing to realise - incumbents (firms) in a perfect competition are price takers and cannot make supernormal profit, in contestable market an incumbent can make supernormal profits, this can be analysed with game theory in terms of hit and run entries, economic loss, normal profits, etc..
 
 
 
Reply
Submit reply
Turn on thread page Beta
Updated: January 28, 2010

University open days

  1. Norwich University of the Arts
    Postgraduate Open Days Postgraduate
    Thu, 19 Jul '18
  2. University of Sunderland
    Postgraduate Open Day Postgraduate
    Thu, 19 Jul '18
  3. Plymouth College of Art
    All MA Programmes Postgraduate
    Thu, 19 Jul '18
Poll
Is the Big Bang theory correct?

The Student Room, Get Revising and Marked by Teachers are trading names of The Student Room Group Ltd.

Register Number: 04666380 (England and Wales), VAT No. 806 8067 22 Registered Office: International House, Queens Road, Brighton, BN1 3XE

Write a reply...
Reply
Hide
Reputation gems: You get these gems as you gain rep from other members for making good contributions and giving helpful advice.