• 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...

Introduction

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.

Middle

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.

Conclusion

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. The structure of the airline industry.

    Many other major airlines are following Delta's lead in this matter. The lack of commission revenue will be met with increased fees to travelers from most travel agencies. Delta now plans to pay incentives based on performance (quantity of bookings).

  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. Chinese car market overview. Citroen case study

    As we can imagine, people are now travelling all around the country, much more than before. At the end the week, people now tend to leave the city and go in the mountains or in the country side... Chinese people can now go on holiday, out for the weekend and have the fresh air.

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

    On the other hand, Wal-Mart stores were located mostly in south-west China cities and entered only Shanghai, Beijing and Guangzhou - the cities with the largest purchasing power. However, Carrefour also entered those three cities stealthily. Location, a necessary condition of retailing, determines the success of business and can not be ignored.

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

    As its neighbour is Spain, it is able to expert and import many goods because it is not as accessible to the rest of the EU. But Portugal are gaining many overseas investors, so they are not really that far behind.

  2. Tobacco industry

    That means that, lower "transactions" costs required to engage in co-ordinated interaction - both the number of meetings or direct communications that might be required and the costs of observing and adjusting to other firms' behaviour grow faster than the number of firms co-operating.

  1. Liberalization: where it has lead us and where it is headed

    Unfortunately, the Indian government won't get out of the way, at least not to the extent it should, because that's not the nature of bureaucracy. A cartoon by Laxman, everyone's favorite Indian newspaper cartoonist, shows a Babu sitting in his office in North Block with a group of his subordinates reading a newspaper, and saying: "Cut red tape??

  2. The sports shoe industry in China

    Air condition is poor and has caused many dizzies. Safety: The working conditions at the factory are often very dangerous to the health of the workers. Workers inhale excessive dust in workplace; there is noise pollution and congestion in the factory.

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