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Contestable Markets - Lesson Plan: 2 x 1 hour lessons

A series of 'off the shelf' lesson plans and resources for use in the classroom. These lessons deal with Contestable Markets and are relevant to the following specifications:

• AQA: Module 5, 14.3
• Edexcel: Unit 4
• OCR: Unit 2884, 5.4.2

Aim:

These lessons look at the issue of contestable markets. This concept is becoming increasingly important as an explanation of the behaviour of firms in different market structures. The lessons focus on the background to the theory provided by the Presentation and then a structured investigation into the low cost airlines industry. The intention is to encourage students to develop analysis and evaluation as they consider how far the market exhibits the characteristics of a contestable market.

The Activity has a short piece of information followed by a task or series of tasks designed to build up the knowledge base and evidence necessary in order to draw conclusions about how far the low-cost airlines industry could be classed as a contestable market. Emphasis has been given to the idea of 'micro-markets'. The reason for this is that firms may see each route as a market in itself and as such could enter and leave that route relatively easily, switching its capital assets with little or no cost. Some students may focus on the costs of buying aeroplanes in the first place and suggest that they may represent sunk costs - the notion of micro-markets might help them to draw a distinction in this respect.

The links to other Web sites will provide a wide range of associated evidence for the student to assimilate. The skills of selection, organisation and use of information will be important in helping the student to develop a sufficient research base to tackle the more demanding questions that come in task 5.

An extension task considering the implication of the existence of contestable markets for regulatory authorities is provided.

Learning Objectives:

At the end of the Activity, students should be able to:

• Identify the key characteristics of a contestable market
• Critically apply these characteristics to the case study material
• Identify relevant information for the evidence provided
• Demonstrate analysis and evaluation skills with respect to the activity tasks
• Demonstrate selection and organisation skills in relation to the evidence provided
• Draw a informed conclusion as a result of the development of the structured tasks

Resources:

• PowerPoint Presentation - Pricing Strategies and Contestable Markets - [160 KB] (basic version also available for quicker download [119 KB])
• Mind Map - Pricing Strategies and Contestable Markets
• Activity - Contestable Markets
• PCs for further research
• Projector, PC and whiteboard for the Presentation

Lesson Structure:

Lesson 1

1. Begin the session by generating a short question and answer session to refresh student memories of market structures. Ask students how realistic they think such models are in explaining the behaviour of firms. Supplementary questions can ask students to think of examples of businesses they are aware of and how far they seem to behave as theory predicts. This is aimed as acting as a primer for introducing the theory of contestable markets. (20 minutes)
2. Introduce the theory of contestable markets. The Presentation and Mind Map can be used to highlight the key points of the theory. The discussion at this point should be linked with students' examples of businesses from the discussion session at the start of the lesson - does this theory offer a more realistic explanation of firms' behaviour in the modern world? (It is worth pointing out to students that, in economic theory terms, this is a relatively modern development. Access to a summary of the theory can be gained by downloading a speech to the American Economics Association by William Baumol.) (30 minutes)
3. Give out the Activity to students and briefly go through the key stages. Identify the learning outcomes and advise on the time available for completion. (This could be utilised through a homework session and one other lesson but some educators may wish to devote more time to allow students to complete the task). (10 minutes)

Lesson 2

This lesson should be devoted to the completion of the Activity.