In a contestable market, an incumbent firm may not wish to deter a rival's entry if the incumbent firm must price so ____ that the firm would be better off sharing the market.

Question

Quizplus · Accepted Answer

In a contestable market, if an incumbent firm has to price its products or services so low to deter a rival's entry that it would actually be more profitable to share the market with the rival, it may choose not to deter entry. This is because pricing too low could lead to reduced profits, making it more advantageous to have a competitor in the market and price at a higher, more profitable level.

In a Contestable Market, an Incumbent Firm May Not Wish