Contestability reconsidered: The meaning of market exit costs

Autor(en): Paech, NP
Stichwörter: Business & Economics; Economics; entry and exit costs; hit-and-run entry; INDUSTRY STRUCTURE; potential competition
Erscheinungsdatum: 1998
Herausgeber: ELSEVIER SCIENCE BV
Journal: JOURNAL OF ECONOMIC BEHAVIOR & ORGANIZATION
Volumen: 34
Ausgabe: 3
Startseite: 435
Seitenende: 443
Zusammenfassung: 
This paper analyses the main result of the contestable market approach, namely, that potential competition reaches its maximum power if market entry and exit is costless and newcomers can use the hit-and-run strategy. Different time lag structures are considered. Average cost pricing turns out to be no equilibrium if there are no market exit costs. Furthermore, exit costs don't necessarily create a barrier to entry, but may even strengthen the discipline arising from the threat of entry. (C) 1998 Elsevier Science B.V.
ISSN: 01672681
DOI: 10.1016/S0167-2681(97)00081-4

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