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In a contestable market there are no structural barriers to the entry of firms in the long-run.

In a contestable market there are no structural barriers to the entry of firms in the long-run. If existing businesses are enjoying high economic profits, there is an incentive for new firms to enter the industry.

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In a contestable market there are no structural barriers to the entry of firms in the long-run.

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  1. In a contestable market there are no structural barriers to the entry of firms in the long-run. • If existing businesses are enjoying high economic profits, there is an incentive for new firms to enter the industry. • This increases market competition and dilutes monopoly profits for the incumbent firms

  2. ‘Hit and Run’ tactics – enter the industry, take the profit and get out quickly (possible because of the freedom of entry and exit)

  3. other examples of markets exhibiting contestability characteristics: • Financial services • Computer industry – ISPs, software, web development • Energy supplies

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