It movement in the framework to a

Published: 2020-07-14 01:20:05
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Category: Law

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It has been stated throughout the analysis of contestable markets above, that the theory utilises much of the static view of competition. However, it should not be underappreciated how dynamic the model is in nature, in fact the degree of contestability of a market that exists can and most probably will fluctuate change over time. This is due to the inevitable movement in the framework to a market, whether that be the level of regulatory intervention (regulatory change, law changes, taxation amendments from Government etc) or changes in other entry and exit barriers which will vary the level of contestability a market exhibits. In addition, any market is potentially open to contestability via technological advancement (some markets more so others, for example the electronics industry). An incumbent firm has the ability to price optimally to protect them self against the threat of new entrants using the same technology, however it can’t defend itself against innovation or technological advancements. This triggers a necessary response of incumbents to invest more heavily in research and development to a greater degree than would be the case without this threat. Consequently, the threat of competition should increase the pace of technological advancement and lead to greater consumer benefits as products beocme more specialised and adapatbale to the ever evolving consumer needs.

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