contestable market

Examples of contestable market in the following topics:

• Market Power

  • A firm usually has market power by virtue of controlling a large portion of the market.
  • However, market size alone is not the only indicator of market power.
  • Barriers to entry determine how contestable the market is.
  • Even highly concentrated markets may be contestable markets if there are no barriers to entry or exit, which limits a firm's ability to raise its price above competitive levels.
  • This measure of market power relates the size of firms to the size of the market.

• Causes of Banking Crises

  • Banking crises can be caused by inadequate governmental oversight, bank runs, positive feedback loops in the market and contagion.
  • In light of recent market and banking failures, the economic analysis of banking crises both historically and presently is a constant source of interest and speculation.
  • Stock Market Positive Feedback Loops: One particularly interesting cause of banking disasters is a similar positive feedback loop effect in the stock markets, which was a much more dynamic factor in more recent banking crises (i.e. 2007-2009 sub-prime mortgage disaster).
  • John Maynard Keynes once compared financial markets to a beauty contest, where investors are merely trying to pick what is attractive to other investors.
  • As the market falls, investors create a positive feedback loop and self-fulfilling prophecy due to a lack of confidence that drives it down even further.

• Market Supply

  • Market supply is the summation of the individual supply curves within a specific market where the market is characterized as being perfectly competitive.
  • Market supply is the summation of the individual supply curves within a specific market.
  • In combination with market demand, the market supply curve is requisite for determining the market equilibrium price and quantity.
  • " If a firm has market power, its decision of how much output to provide to the market influences the market price, then the firm is not "faced with" any price, and the question is meaningless.
  • Therefore, production in the market is a sliding scale dependent on price.

• The Demand Curve in Perfect Competition

  • In a perfectly competitive market the market demand curve is a downward sloping line, reflecting the fact that as the price of an ordinary good increases, the quantity demanded of that good decreases.
  • Price is determined by the intersection of market demand and market supply; individual firms do not have any influence on the market price in perfect competition.
  • Once the market price has been determined by market supply and demand forces, individual firms become price takers.
  • The demand curve for a firm in a perfectly competitive market varies significantly from that of the entire market.The market demand curve slopes downward, while the perfectly competitive firm's demand curve is a horizontal line equal to the equilibrium price of the entire market.
  • The market demand curve is downward-sloping.

• The Role of the Financial System

  • A financial market or system is a market in which people and entities can trade financial securities, commodities, and other fungible items.
  • A financial market or system is a market in which people and entities can trade financial securities, commodities, and other fungible items .
  • There are both general markets (where many commodities are traded) and specialized markets (where only one commodity is traded).
  • Financial markets are associated with the accelerated growth of an economy.
  • Equity markets are the most closely followed of the financial markets.

• The Function and Nature of Markets

  • A free market is a market structure that is not controlled by a designated authority.
  • Consider the market for computers.
  • Changes to the market supply and market demand will cause changes in the equilibrium price and quantity of the good produced.
  • When markets are perfectly competitive, the equilibrium outcome of trade in the market is economically efficient.
  • The market equilibrium exists where the market demand curve and the market supply curve intersect.

• Introduction to Pure Competition

  • Purely competitive markets are used as the benchmark to evaluate market performance.
  • It is generally believed that market structure influences the behavior and performance of agents with in the market.

• Capital Market

  • A key division within the capital markets is between the primary markets and secondary markets.
  • In primary markets, new stock or bond issues are sold to investors.
  • The existence of secondary markets increases the willingness of investors in primary markets, as they know they are likely to be able to swiftly cash out their investments if the need arises.
  • Money markets and capital markets are closely related, but are different types of financial markets.
  • The NYSE is one of the largest capital markets in the world.

• Introduction to Demand and Supply in a Market System

  • The market system is an interrelated set of markets for goods, services and inputs.
  • A market is defined as the interaction of all potential buyers and sellers of a good or class of goods that are close substitutes.
  • Partial equilibrium is the analysis of the equilibrium conditions in a single market (or a select subset of markets in a market system).
  • In a partial equilibrium model, usually the process of a single market is considered.
  • The behavior of potential buyers is represented by a market demand function.

• Clearing the Market at Equilibrium Price and Quantity

  • When a market achieves perfect equilibrium there is no excess supply or demand, which theoretically results in a market clearing.
  • While this concept of market clearing resonates well in theory, the actual execution of markets is very rarely perfect.
  • Another classic criticism of market clearing is the way in which the labor market functions.
  • In the 1930's, during the worst depression recorded in the United States, the labor market did not clear the way economic theories of market clearing would assume it would.
  • The equilibrium point is where market clearing will theoretically occur.