A Note on MacLeod's Treatment of Contestability

Robert Cairns

Canadian Journal of Economics, 1989, vol. 22, issue 2, 434-37

Abstract: A model by W. B. MacLeod seeks to correct contestability theory's neglect of strategic interaction among market participants. However, the model reverses a central assumption of that theory, i.e., that the incumbent's price-response lag is longer than the entry lag. Also, the analysis is incomplete and, as a result, emphasizes internal market conditions rather than entry conditions, the focus of contestability theory. Modifications demonstrate the interaction of internal and entry conditions in determining equilibrium.

Date: 1989
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