4.3. Critique

This theory has been met with scepticism on various grounds. Since we have already dealt with some of it in the discussion above, the major points are just sketched here without lengthy explanations.

– There are few markets in which price inflexibility would be high enough to make hit-and-run entries worthwhile.

– There are few markets in which sunk costs, i.e., irreversible investment, are sufficiently low to make hit-and-run entry worthwhile.

The models of competition policy never even faintly resemble messy economic reality. But we believe that an important message concerning competition policy follows from the models of contestability theory, namely that market structure can be negligible as long as entry barriers into a market do not constitute a serious threshold. This will be taken up again in greater detail in chapter IV.