For the theory of contestable markets to work, four conditions have to be met: no barriers to market entry, no economies of scale present, consumer willingness to switch between carriers, and
A) sellers and buyers of such small size that price or supply cannot be influenced.
B) existing carriers prevented from responding to new entrants' lower prices.
C) mutual interdependence between various sellers.
D) no one seller controls a significant portion of the market.

Question

Quizplus · Accepted Answer

For contestable markets, existing carriers must be unable to respond to new entrants' lower prices, ensuring that potential competition can discipline the market.

For the Theory of Contestable Markets to Work, Four Conditions