A contestable market is:

Question

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A contestable market is an imperfectly competitive situation that is subject to entry. This means that although there may be only a few dominant firms in the market, new firms are able to enter easily and, if necessary, exit just as quickly. This threat of entry keeps existing firms on their toes, as they know they could lose their market share to new entrants at any time. Therefore, a contestable market is different from a perfectly competitive market (A) where there are many small firms, and from an imperfectly competitive situation with high barriers to entry (B) where dominant firms have more market power and can keep out new competitors. Option D is incorrect as a monopolistic market has only one producer, and is not contestable.

A Contestable Market Is