Question

according to contestable market theory:

a. barriers to entry are much less important than market structure in determining the degree of price competition in an industry.

b. neither barriers to entry nor market structure effects that agree of price competition in an industry

c. barriers to entry are much more important than the market structure in determining the degree of price competition in an industry.

d. barriers to entry in a market structure of the polls important in determining the degree of price competition in an industry.

Answer 1

Correct option is c. barriers to entry are much more important than the market structure in determining the degree of price competition in an industry.

According to contestable market theory: barriers to entry are much more important than the market structure in determining the degree of price competition in an industry. In a contestable market, there are no or low barriers to entry or exit, so this feature of contestable market theory forces even the monopoly or oligopoly firm to behave competitively because lack of barriers to entry will not allow these firms to prevent new companies from entering into the market. The behavior of the firms in a contestable market is mostly influenced by the threat of new entrants to the industry.