Contestable Market Theory

AAA

DEFINITION of 'Contestable Market Theory'

An economic concept that refers to a market in which there are only a few companies that, because of the threat of new entrants, behave in a competitive manner.

INVESTOPEDIA EXPLAINS 'Contestable Market Theory'

The contestable market theory assumes that even in a monopoly or oligopoly, the existing companies will behave competitively when there is a lack of barriers, such as government regulation and high entry costs, to prevent new companies from entering the market.

Considerable criticism surrounds this theory because there are often large entry and exit costs associated with entering a market.

RELATED TERMS
  1. Perfect Competition

    A market structure in which the following five criteria are met: ...
  2. Price-Taker

    1. An investor whose buying or selling transactions are assumed ...
  3. Porter's 5 Forces

    Named after Michael E. Porter, this model identifies and analyzes ...
  4. Deregulation

    The reduction or elimination of government power in a particular ...
  5. Monopoly

    A situation in which a single company or group owns all or nearly ...
  6. Oligopoly

    A situation in which a particular market is controlled by a small ...
RELATED FAQS
  1. Why was Microsoft subject to antitrust charges in 1998?

    On May 18, 1998, the Department of Justice filed antitrust charges against Microsoft (Nasdaq:MSFT ). The charges were brought ... Read Full Answer >>
Related Articles
  1. Personal Finance

    Early Monopolies: Conquest And Corruption

    This structure can be very effective, but it is also known for its abuse of power.
  2. Personal Finance

    A History Of U.S. Monopolies

    These monoliths helped develop the economy and infrastructure at the expense of competition.
  3. Personal Finance

    Antitrust Defined

    Check out the history and reasons behind antitrust laws, as well as the arguments over them.
  4. Personal Finance

    What Drives Consumer Demand for Tesla?

    Tesla did not invent the electric vehicle market, but it has brought to it elements of luxury and elite status. But what really drives demand for Teslas?
  5. Economics

    Economics Basics

    Learn economics principles such as the relationship of supply and demand, elasticity, utility, and more!
  6. Investing

    Opportunity Cost

    Every action has a cost, even the ones you don't pursue. Find out how this is calculated.
  7. Fundamental Analysis

    How Influential Economists Changed Our History

    Find out how these five groundbreaking thinkers laid our financial foundations.
  8. Economics

    How Fannie Mae And Freddie Mac Were Saved

    These mortgage giants had to be put under government conservatorship, driving home the gravity of the subprime crisis.
  9. Economics

    The Economics Of Labor Mobility

    Loosening labor restrictions has both good and bad effects for a country and its workers.
  10. Economics

    What Is Opportunity Cost And Why Does It Matter?

    Economists suggest that the "opportunity cost" of any decision, the value of the next-best alternative, is crucial to making sound choices.

You May Also Like

Hot Definitions
  1. Fixed-Charge Coverage Ratio

    A ratio that indicates a firm's ability to satisfy fixed financing expenses, such as interest and leases. It is calculated ...
  2. Efficiency Ratio

    Ratios that are typically used to analyze how well a company uses its assets and liabilities internally. Efficiency Ratios ...
  3. Fixed Cost

    A cost that does not change with an increase or decrease in the amount of goods or services produced. Fixed costs are expenses ...
  4. Subsidy

    A benefit given by the government to groups or individuals usually in the form of a cash payment or tax reduction. The subsidy ...
  5. Sunk Cost

    A cost that has already been incurred and thus cannot be recovered. A sunk cost differs from other, future costs that a business ...
  6. Technical Skills

    1. The knowledge and abilities needed to accomplish mathematical, engineering, scientific or computer-related duties, as ...
Trading Center