What is contestable market theory and limit pricing and does the coffee market being more contestable help customers?
The contestable market theory is an economic theory that proposes that a market is competitive as long as it is easy for firms to enter and exit. According to this theory, even if there are only a few firms in a market, if it is easy for new firms to enter and existing firms to exit, the market will behave competitively. This is because the threat of new entrants and the possibility of existing firms exiting will provide an incentive for firms to keep prices low and quality high in order to remain competitive. Watch this video for an explanation of contestable markets for CIE A2 and all you need to know: Limit pricing is a common pricing strategy that involves setting prices at a level that is low enough to deter new firms from entering a market, but high enough to cover the costs of existing firms. Firms may use limit pricing in order to protect their market share and prevent new entrants from gaining a foothold in the market. Prices are set at ATC = AR when the market is perfectly co