(A) quantitative analysis of equilibrium market structure and production scale in a contestable market

Abstract

The largest advantage of the contestable market theory is the consistent explanation of behaviors of firms within a single framework. The theory of the contestability is composed of three parts, i.e., free entry, sustainability, and marginal cost pricing. This paper suggests a mathematical formulation of this theory which synthesizes these three parts for quantitative analysis. Additionally, it includes explicit economic interpretations for the qualitative characteristics. It is seen that the mathematical formulation of this paper has reasonable meanings in certain situations relative to the established studies.