A market is contestable if:
A) it is dominated by a single firm.
B) a competitor could credibly enter and take away business from the incumbent.
C) competitors allege that the dominant firm is an illegal monopoly.
D) prices are very high.

Question

Quizplus · Accepted Answer

A market is contestable if a competitor could credibly enter and take away business from the incumbent. This means that the incumbent firm faces a credible threat of entry, which keeps prices and profits in check, even if there are no actual competitors present in the market. A market can be contestable even if it is dominated by a single firm or if prices are very high, as long as entry is possible and credible. Allegations of illegal monopoly conduct may be one factor that makes a market less contestable, but they do not determine whether a market is contestable or not.

A Market Is Contestable If