Paul and Maggie advertise for a babysitter. Jenny is the only one who answers the ad and she's hired. She asks for $7 per hour and gets it. She occasionally thinks of raising the rate to $10 but is afraid that Paul and Maggie will decide to advertise again. This tale is analogous to

Question

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Jenny's situation is analogous to contestable markets because she is the only babysitter (a monopoly) but is deterred from raising prices due to the threat of potential competition (Paul and Maggie advertising again), similar to how firms in contestable markets behave.

Paul and Maggie Advertise for a Babysitter