Contestable market
A contestable market is characterised by low barriers to entry and exit, meaning potential competition threatens incumbent firms even if currently few firms operate in the market. Incumbents cannot sustain supernormal profit or engage in monopolistic behaviour due to threat of entry.
Real World
Budget airlines like easyJet and Ryanair transformed European air travel by exploiting contestable routes — low aircraft leasing costs and minimal sunk costs allowed rapid entry onto profitable routes previously served by flag carriers like British Airways, forcing fares down.
Exam Focus
Emphasise sunk costs as the key determinant of contestability; many students confuse barriers to entry with sunk costs — examiners reward the distinction.
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