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Does the entrance fee for a monopoly platform with monopolistic competition eliminate socially desirable products?

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  • Ming Chung Chang
  • Hsiao-Ping Peng
  • Yan-Ching Ho

Abstract

type="main" xml:lang="en"> This paper is concerned with a monopoly platform in which firms compete by setting quantities, each producing a variety of differentiated goods. Should a firm desire to enter the platform, it must pay an entrance fee to the platform owner, as well as incur a fixed setup cost. Since the platform can be maintained at zero cost, the platform owner aims to maximize the total entrance fee revenue. When a product is introduced, it reduces the prices of the other goods, thereby adversely affecting the revenue of other firms. Under condition of free entry, the entering firm does not take this effect into account. In contrast, the platform owner does take it into account. As a result, the entrance fee may act to raise welfare by eliminating socially undesirable goods.

Suggested Citation

  • Ming Chung Chang & Hsiao-Ping Peng & Yan-Ching Ho, 2015. "Does the entrance fee for a monopoly platform with monopolistic competition eliminate socially desirable products?," International Journal of Economic Theory, The International Society for Economic Theory, vol. 11(3), pages 295-310, September.
    • Handle: RePEc:bla:ijethy:v:11:y:2015:i:3:p:295-310
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