To what extent is a market contestable?

A contestable market is one in which there are low sunk costs. These are costs that are spent upon entry but cannot be recovered upon exit. Reasons why the market may be contestable is low operating costs. If the costs of operating are low more firms will be able to enter the market, therefore barriers to entry will be lower making the market more contestable. On the other hand, one reason why the market may be less contestable is high advertising expenditure. In a market characterized by various strong brands, a firm will have to spend heavily on advertising making the firm less able to enter the market.