The Nature and Scope of Contestability Theory
Contes tability theory suggests that threat of entry may prevent monopolistic pricing e ven in a concentrated market because, if exit from the market is easy, monopolis tic pricing would induce hit and run entry. This paper shows that, despite easy exit, hit and run entry is unprofitable if incumbents' price responses are suffi ciently rapid. Only market data (not experimental) can reveal whetherresponses are sufficiently rapid; available evidence indicates they are. Another version o f contestability theory stresses threat of entry through long-term contracts. Th is threat, too, is shown to be unlikely to check monopolistic pricing. Copyright 1986 by Royal Economic Society.
Volume (Year): 38 (1986)
Issue (Month): 0 (Suppl. Nov.)
|Contact details of provider:|| Postal: Oxford University Press, Great Clarendon Street, Oxford OX2 6DP, UK|
Fax: 01865 267 985
Web page: http://oep.oupjournals.org/
|Order Information:||Web: http://www.oup.co.uk/journals|
When requesting a correction, please mention this item's handle: RePEc:oup:oxecpp:v:38:y:1986:i:0:p:37-57. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Oxford University Press)or (Christopher F. Baum)
If references are entirely missing, you can add them using this form.