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The theory of contestable markets has been used to argue for weaker application of antitrust laws, as simply observing a monopoly market may not prove that a firm is exploiting its market power to control the price level. [5] Baumol himself argued based on the theory for both deregulation in certain industries and for more regulation in others. [6]
The Theory of Environmental Policy, with W.E.Oates, 1975. Economics, Environmental Policy and Quality of Life, with W.E.Oates and S.A. Batey Blackman 1979. Contestable Markets and the Theory of Industry Structure, with J.C. Panzar and R.D. Wilig, 1982 "Contestable Markets: An Uprising in the Theory of Industry Structure", 1982, "AER".
The theory of contestable markets argues that in some circumstances (private) monopolies are forced to behave as if there were competition because of the risk of losing their monopoly to new entrants. This is likely to happen when a market's barriers to entry are low. It might also be because of the availability in the longer term of ...
Profit can, however, occur in competitive and contestable markets in the short run, as firms jostle for market position. Once risk is accounted for, long-lasting economic profit in a competitive market is thus viewed as the result of constant cost-cutting and performance improvement ahead of industry competitors, allowing costs to be below the ...
The structure of a well-functioning market is defined by the theory of perfect ... this equilibrium emerges endogenously due to the nature of contestable markets; ...
As Managing Director and Head of Global Financial Strategies at Credit Suisse, Michael Mauboussin advises clients on valuation and portfolio positioning, capital markets theory, and competitive ...
Pages for logged out editors learn more. Contributions; Talk; Contestable markets
A firm usually has market power by having a high market share although this alone is not sufficient to establish the possession of significant market power. This is because highly concentrated markets may be contestable if there are no barriers to entry or exit. Invariably, this limits the incumbent firm's ability to raise its price above ...