Contestable Markets (Online Lesson)

In this online lesson, we cover the market structure of contestable markets (contestability).

WHAT YOU'LL STUDY IN THIS ONLINE LESSON

• the meaning of contestability and its relationship to the traditional 'spectrum of competition'
• pros and cons of contestability
• outcomes (e.g. price and output) in a contestable market
• government policies to promote contestability

Additional teacher guidance is available at the end of this online lesson. Thank you to Cathy Williams and Jon Clark for their contributions to this online lesson.

HOW TO USE THIS ONLINE LESSON

Follow along in order of the activities shown below. Some are interactive game-based activities, designed to test your understanding and application of market structures and contestability. Others are based on short videos, including activities for you to think about and try at home, as well as some extra worksheet-based activities.

If you would like to download a simple PDF worksheet to accompany the video activities, you can find it here. You can print it off and annotate it for your own notes, or make your own notes on a separate piece of paper to add to your school/college file.

ACTIVITY 1: GAME - MARKET STRUCTURES CHARACTERISTICS

Review the key characteristics of the various market structures in this interactive activity.

ACTIVITY 2: VIDEO - INTRODUCTION

This video looks at the traditional market structure spectrum of competition, and considers why and how contestable markets don't fit with the traditional model

ACTIVITY 3: VIDEO - THE THEORY

In this video, we cover the nature of contestable markets in more depth, looking at the impact of low barriers to entry on output and pricing.

ACTIVITY 4: ESSAY ANALYSIS

For this activity, we'll take a look at some example essay answers on topics related to contestable markets.

Click here to read an example answer from Geoff Riley on the impact of barriers to entry on economic profit.

And click here to download an example essay accompanied by examiner commentary on rising contestability in the postal sector.

Summarise the key features (content and structure) of these essays.

ACTIVITY 5: VIDEO - WHY ARE SOME MARKETS NOT CONTESTABLE?

Here, we cover some of the reasons why some markets are unable to be contestable, for example, for reasons of high sunk costs and natural monopoly.

ACTIVITY 6: APPLIED THINKING TASK

Download this tutor2u All Change activity, which looks at some real-world business case studies and considers the ways in which those businesses have been threatened by falling barriers to entry.

ACTIVITY 7: VIDEO - MORE APPLICATION

This video covers even more real-world examples of markets that have become more contestable.

ACTIVITY 8: SYNOPTIC CONNECTIONS

Download these tutor2u synoptic assessment mats on

1. the motor vehicle repair industry, and
2. the British high street

Read the case study in the centre of each mat, and then have a go at the questions accompanying each case study.

ACTIVITY 9: VIDEO - POLICIES

In this final video, we look at some of the policies that governments can deploy to help make markets more contestable. Don't forget that these can often also count as supply-side policies - this is a GREAT area for making synoptic connections.

EXTENSION TASK

The economist William Baumol helped to develop the theory of contestable markets (amongst many other aspects of economics!). Read a brief summary of his life and work from The Economist, published shortly after he died in 2017. Carry out your own wider reading and research into Baumol's work on contestable markets.

ADDITIONAL TEACHER GUIDANCE

This lesson comprises:

• just under 40 minutes of guided video content, spread across 5 videos
• around 20 - 30 minutes of student thinking and activity time, spread across those videos
• an interactive game for reviewing key market structures
• an essay task, examining 2 example essays on contestability
• an application task (All Change!)
• 2 synoptic assessment mats, connecting contestability with other economic topics
• an extension task, focusing on the work of economist William Baumol