A market is not contestable if:

Question

Quizplus · Accepted Answer

Entry to a market is costly when there are barriers to entry, such as high start-up costs, regulatory barriers, or economies of scale. Exit from a market is costly when there are sunk costs, such as specialized assets or long-term contracts, that cannot be easily recovered if the firm exits the market. If both entry and exit are costly, then firms will be less likely to enter or exit the market, which will reduce competition and lead to higher prices.

A Market Is Not Contestable If