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Competition-Accelerating Public Investments

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  • TOSHIHIRO MATSUMURA

Abstract

We investigate the effects of infrastructure investments that reduce transport costs. We use a spatial model of Salop (1979). It is well known that the number of firms is excessive at free-entry equilibrium (excess entry theorem). We find that the optimal investment level exceeds the ex post cost-minimising level because investments accelerate competition and reduce the number of entering firms; resulting in the improvement of welfare. We also show that, in cases where the excess-entry theorem is true, the desirable policy is the one accelerating, rather than restricting, competition. Copyright Blackwell Publishing Ltd/University of Adelaide and Flinders University 2005..

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Australian Economic Papers.

Volume (Year): 44 (2005)
Issue (Month): 3 (09)
Pages: 269-274

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Handle: RePEc:bla:ausecp:v:44:y:2005:i:3:p:269-274

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0004-900X

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