In a perfectly contestable market
there must be frictionless reversible entry.
Policy makers will suggest that this is evidence of contestable market
, pointing out that firms are entering the market and investing in facilities to support this entry.
--content markets (indeed one and two-sided markets) may in fact be contestable markets
, questioning the use of ex ante regulation in the first place;
, COMPETITION AND PRIVATE PROPERTY
The theory of contestable markets
developed by Baumol et al.
The threat of intervention in the theory of contestable markets
is considered affecting the production and prices decisions made by incumbent firms in an industry.
theory--which describes how a new, aggressive
The Contestable Market
Theory framework proposes that a potential competitor can use any strategy, even the short-run possibility of profit gain, because he can enter the market and gain profit before prices have changed, and leave the industry having no costs.
(8) The first half of this article focuses on the inapplicability of the "contestable markets
theory," which animates (at least implicitly) the Trinko opinion, to important segments of the electricity industry, such as transmission and generation.
To reinforce the criticism of natural-monopoly arguments, Grossman presents a review of theory that is titled "Is Anything Naturally a Monopoly?" The review covers much ground--traditional textbook analyses, the contestable market
approach of Baumol, Panzer, and Willig, the application of Coase's classic 1937 article on the extent of the firm, the relevance to electric power, and the history of the concept.
``Having acquired Go Fly, one of the very few other potential buyers of significant numbers of aircraft, we have exploited the contestable market
to its full potential.
 After removing barriers to entry, the long-run economic rent to incumbent firms is reduced; however, the contestable market
theory does not require positive economic rents for new entrants.