• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

Choosing a utility industry such as telecommunications or water industry, explain the factors, which may affect the contestability of the market.

Extracts from this document...


SECTION B - ECONOMICS QUESTION (a) Choosing a utility industry such as telecommunications or water industry, explain the factors, which may affect the contestability of the market. A contestable market is a market where an inefficient firm or firms, which is earning excess profits, is likely to be driven out by more efficient or less profitable rival. A market can be contestable even if a single firm, which appears to enjoy a monopoly with market power, dominants it and the new entrant exists only as potential competition. The threat posed by the new entrants in the market is taken to be a key reason for the firm's behaviour in the market. There are many factors that can affect the contestability of the market. The number of firms in the market can change the contestability of the market. If there are many firms in a market the market is known to be contestable. As for the water industry the number of firms in the market are very few and most of these firms take most of the market share. ...read more.


Also as the other company currently in the market is established it might be too costly for the new entrant to establish and gain reputation. The market knowledge is another factor that can affect the contestability. Perfect knowledge to the consumer of the market will mean that the market is perfectly contestable. But this can only occur in a perfectly competitive market but in an oligopoly market the knowledge is not perfect making it unlikely contestable. Collusions may also lead to the market becoming highly incontestable. Collusion is when two firms get together to restrict competition. This might mean the in the water industry two companies might think of joining up so that they don't have to compete with each other but take their own proportion of the market share. In the long run firms benefit. This might help the firm gain monopoly power in the market and gain abnormal profits. Cartels are another factor that can lead to the market to be highly incontestable. A cartel is when a group of firms in the market get together and try to restrict the competition in the market. ...read more.


This is best for the consumer because as there is competition this will mean that the prices will be low giving the consumer more of a better price. It will give more of a choice to the consumer if competition is taking place. The other advantage is the business makes sure that no monopolies arise. The competition commission can do this by looking at the market share that each business has. In the UK a business with over 25% of the market share is classified as a monopoly. Monopolies are the main cause to market failure as the firm dominating the market produces inefficiently. These firms are price givers, they make the prices for the customers and as the product being sold is unique the customers have no choice but to buy the product at that price. This type of structure has high barriers to entry disallowing other firms from entering the market. As there are fewer firms the prices are high and the consumer choice is reduced leading to market failure. So the competition commission try to reduce this by intervening and disallowing this to take place and restoring competition. SOHAIL KHAN ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our GCSE Economy & Economics section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related GCSE Economy & Economics essays

  1. Airline Industry and Contestability Project - What is a contestable market?

    The cost of exiting and Industry is often termed as sunk costs. These are the costs that a firm can't recover when they decide to exit the industry. An example of a sunk cost would be money spent on advertising, because you cannot recover the money you spent on advertising.

  2. To what extent is the UK airline industry a contestable market?

    The threat of such competition forces monopolists and oligopolists to offer consumers the benefits that they would receive in a more competitive market structure. Firms in a contestable market expected to be productive and allocative efficient. They produce where the average cost is at its minimum and also where price equals to marginal cost.

  1. Use game theory to analyze an oligopoly competition of two great rivals, Wal-Mart and ...

    But at the moment Chinese business environment restrict Wal-Mart's advantages. Meanwhile, due to policy restrictions Wal-Mart can not use its satellite transmission system, thus its global procumbent and logistic system can not work in China market effectively.

  2. The structure of the airline industry.

    Approximately 50% of their sales happen via the internet. The cost of labor is by far the biggest expense for the airline service industry - averaging 37.5% of operating expenses, according to the Air Transport Association. Southwest has an incredibly low labor cost structure when compared to Delta and the other major airlines.

  1. Bellway Plc is a holding company with subsidiaries; its main subsidiary company is Bellway ...

    Bear 2 09/01 - 10/01 Market * Terrorist attack in the USA, reduced market confidence. 3 05/02 - 09/02 Market * Stock market crashed 6 05/03 - 08/03 Industry * Concerns over military action in the Middle East created economic uncertainties dampening demand for new homes.29 7 11/03 - 08/04

  2. Japanese Car Industry in a Business Context.

    For example, it can make laws to allow car industry to expand and receive tax relief on modernization programmes and ensure car industry receive priority in foreign investment. Through the government intervention and policy making, it benefits not only the car industry, but also overall national competitiveness Vitally important to

  1. The Australian Mobile Communication Industry.

    to Telstra, two new operators to build and operate digital GSM mobile networks. These companies were Optus and Vodafone. In the second stage of the government's deregulatory drive in the year of 1997, they licensed the right to operate mobile services to three additional companies: Hutchison, AAPT and One.tel.

  2. This report will establish the opportunities and threats presented to Sony by the EU ...

    Firms can expand or change products due to consumer demands and wants and lower prices can be offered to increase competition. This also means more consumer choice, which leads to economic growth and jobs. d) Niche Market: when firms aim at a relatively small segment of the market.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work