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Economies of Scale and Barriers to Entry According to the traditional neoclassical analysis based on the structure-conduct-performance paradigm, the efficiency of a market is determined by its level of concentration and the extent of collusion between the existing firms. Any deviations from the ideal of perfect competition is thought to involve dead-weight losses and hence warrant some sort of government intervention. This has been recently challenged by the contestable markets theory, put forward by Baumol (1982) according to which a perfectly contestable market is characterised by optimal behaviour yet applies to all market structures. Many implications and insights can be drawn from that theory among which is a greater faith in the free market but as we will see later in the essay, the practical as well as the theoretical implications of the CM theory may not be as great. Briefly presenting the classical view, it focuses on equilibrium and comparative statics...

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