Contestable market
Imagine you have a lemonade stand and you're selling lemonade that costs 50 cents per cup. Your neighbor, Timmy, sees that you're making a profit and sets up his own lemonade stand for 40 cents per cup.
If you're in a contestable market, this means that other people can easily enter the lemonade selling business and compete with you and Timmy. So, if someone else sets up a lemonade stand and sells lemonade for 30 cents per cup, customers may go to them instead of you or Timmy.
This is because in a contestable market, there are no barriers to entry. Anyone can start their own business and sell goods or services. There are also no barriers to exit, meaning that if someone's lemonade stand isn't making enough money, they can easily close it down and leave the market.
Because of this, businesses in a contestable market are always trying to improve their products and lower their prices in order to stay competitive. This is good for customers because they have more choices and can get the best value for their money. But it can be tough for businesses to make a consistent profit because they are always under pressure to improve or be overtaken by new competitors.
If you're in a contestable market, this means that other people can easily enter the lemonade selling business and compete with you and Timmy. So, if someone else sets up a lemonade stand and sells lemonade for 30 cents per cup, customers may go to them instead of you or Timmy.
This is because in a contestable market, there are no barriers to entry. Anyone can start their own business and sell goods or services. There are also no barriers to exit, meaning that if someone's lemonade stand isn't making enough money, they can easily close it down and leave the market.
Because of this, businesses in a contestable market are always trying to improve their products and lower their prices in order to stay competitive. This is good for customers because they have more choices and can get the best value for their money. But it can be tough for businesses to make a consistent profit because they are always under pressure to improve or be overtaken by new competitors.
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