Contestability vs. Competition: Once More

William G. Shepherd

Land Economics, 1995, vol. 71, issue 3, 299-309

Abstract: Baumol, Willig, and other advocates of "contestability" theory continue to urge the idea not only for its insights but also as a clear basis for many antitrust and regulatory decisions. Yet the limits of the theory remain. The three key assumptions are extremely strict, and two of them are in mutual conflict. The theory is not robust to imperfections. In order to displace effective competition with contestability, Baumol must adopt a sequence of implausible propositions which, unfortunately, have little analytical or empirical basis.

Date: 1995
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