What lecturers do in lectures


7


Task 4


Lecture structure (3): Contestable markets


In the next lecture, the speaker is talking about contestable markets. He defines them as markets where entry and exit barriers do not exist or are low; in other words, it is easy or cheap for new suppliers to come into the market, and so existing suppliers have to worry about potential competition. The airline industry is commonly given as an example of such a market – especially now that there are many low-cost airlines.


The speaker begins by talking about the theory of perfect contestability and what the theory predicts. He then discusses the problem with this theory.


4.1


Before you listen, check that you understand the meaning of the following words and phrases.


marginal costs in excess of


incur sunk costs inevitable delays


monopoly price undercut the price


Do you think contestable markets are good for: 1. the consumers? 2. firms already in the market? 3.


firms that would like to come into the market?


4.2  CD2: 9 Listen to the extract and complete the notes.


Note: The speaker uses the term incumbent firm to refer to companies that are already in the market and the terms an entry and the entrant to refer to companies that would like to come into the market.


What the theory predicts: oligopolies


Problems with the theory:


Listening


55


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