Contestable Market Theory - Explained
What is Contestable Market Theory?
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What is Contestable Market Theory?
Contestable market theory is an economic concept that states that companies which have few rivals behave in a competitive manner because the market entry conditions are weak and allow for potential new entrants.
The contestable market theory implies that there is a continuous threat of potential market entry by a company's rivals.
Back to: STRATEGY & PLANNING
Characteristics of a Contestable Market
Characteristics of a contestable market include:
- Freedom of entry or exit: There is no condition for firms trying to enter into the market.
- Absence of irrecoverable incurred cost, i.e., sunken cost: Firms should be able to exit the market without incurring any capital cost.
- Presence of equal access to the same level of technology by both existing firms and new entrants.
- The new market entrants must be able to execute the hit and run tactics: Free and costless market entry enables new entrants to make profits and exit the market before existing firms bring down their prices.
Related Topics
- Competitive Strategies
- Functional Strategies
- Organizational Strategies
- Operational Strategy
- Contestable Market Theory
- Value Disciplines
- Porter's Generic Strategies
- Differentiation (Strategy)
- Commoditize
- Niche Market Strategy
- Long Tail
- Low-Cost Production
- Resource-Based View of the Firm
- Ansoff Matrix
- Customer-Centric Strategy
- Blue Ocean Strategy
- Overfished Ocean Strategy
- Hedgehog Concept (Strategy)
- Innovation Strategy
- Bleeding Edge
- Disintermediation (Strategy)
- Strategic Alliance
- Coopetition (Strategy)
- Loss Leader Strategy
- Lean Strategy
- Game Theory Perspectives
Other Related Topics
- Perfect Competition
- Market Power
- Price Takers
- Price Makers (Pricing Power)