A contestable market necessarily occurs when
A) two or more firms are competing.
B) potential entry holds down prices.
C) the four- firm concentration ratio exceeds 50 per cent.
D) the four- firm concentration ratio is less than 50 per cent.

Question

Quizplus · Accepted Answer

A contestable market is characterized by the ease with which potential competitors can enter and exit the market. The key aspect is not the actual number of firms or the concentration ratio, but whether the threat of potential entry exists and influences the pricing and output decisions of the existing firms. This potential entry can hold down prices even in the absence of actual entry, as incumbent firms price competitively to deter new entrants.

A Contestable Market Necessarily Occurs When