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Explain the difference between a perfectly competitive market and a perfectly contestable market.

      

Explain the difference between a perfectly competitive market and a perfectly
contestable market.

  

Answers


Lydia
A perfectly competitive market can be defined as existing whenever individually buyers and sellers believe their own actions will have no influence on the market price. In a perfectly competitive market there are a large number of firms who sell homogenous products. Perfect information exists and there are no barriers to entry or exit, and as a result all firms are price takers.
A perfectly contestable market can be defined as existing where “an entrant has access to all production techniques available to the incumbents, is not prohibited from wooing the incumbent’s customers, and entry decisions can be reversed without cost.” Like perfectly competitive markets a perfectly contestable market has no barriers to entry or exit and all agents have perfect knowledge.
However in a perfectly contestable market the number of firms can vary from one to many and the product can be homogenous or differentiated.
lydiajane74 answered the question on July 5, 2018 at 04:46


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