Contestability: The Debate and Industry Policy

Rhys D. Evenden and Alan W. Williams
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Rhys D. Evenden: University of Queensland, Brisbane
Alan W. Williams: Queennsland Transport, Dorrington

Economic Analysis and Policy, 2000, vol. 30, issue 1, 75-90

Abstract: This paper examines the legacy if the debate over perfectly contestable markets, the usefulness of several variations on the theory of imperfectly contestable markets including consideration of the problems associated with identifying contestable markets, and the contribution of contestability theory to the understanding of industry structure and appropriate industry policy. The debate surrounding contestability theory prompted economists to critically reassess the neoclassical theory of the firm, particularly with respect to: impediments to potential competition; the complementary role of potential and actual competition in affecting the conduct of incumbent firms; and the role of direction of appropriate industry regulation. The major problems identified by the debate are the difficulty in determining the extent to which markets may be imperfectly contestable and the framing of policy approaches appropriate to specific industry contexts.

Date: 2000
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