Final dates! Join the tutor2u subject teams in London for a day of exam technique and revision at the cinema. Learn more

Study Notes

Contestable Markets and Minimum Efficient Scale

AQA, Edexcel, OCR, IB

Last updated 22 Mar 2021

The nature of costs in an industry will influence how contestable it is.

When the minimum efficient scale is a small percentage of total market demand, there is room for plenty of businesses to reach productive efficiency in the long run and larger firms will have only a limited cost advantage to challenger businesses. This means that the market is likely to be highly contestable.

In contrast, when there are significant economies of scale and a business can reduce their long run unit costs by scaling up production, established businesses will have a large cost advantage and the market will become less contestable and more highly concentrated.

© 2002-2024 Tutor2u Limited. Company Reg no: 04489574. VAT reg no 816865400.