Which increases the contestability of a market?
I. low fixed costs of entry
II. no legal barriers to entry
III. consumers are willing to try substitute goods
A) I, II, and III
B) II and III only
C) I only
D) II only

Question

Quizplus · Accepted Answer

All three options increase the contestability of a market. Lower fixed costs make it easier for new firms to enter the market, while no legal barriers remove any obstacles that may prevent new competition. A willingness by consumers to try substitute goods increases the likelihood of losing market share for existing firms, which in turn incentivizes innovation and lower prices to retain customers.

Which Increases the Contestability of a Market