In a sequential contestable market game,
A) the dominant firm always makes a monopoly profit, while other firms make zero economic profits.
B) the outcome is always a monopoly equilibrium.
C) a small number of firms can behave like firms in perfect competition.
D) a firm that enters the market first is protected from potential entrants by natural barriers.

Question

Quizplus · Accepted Answer

In a sequential contestable market game, a small number of firms can indeed behave like firms in perfect competition due to the threat of potential entry if they try to set prices above competitive levels. This keeps prices and profits similar to those found in perfectly competitive markets, despite the small number of firms.

In a Sequential Contestable Market Game