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The Market Selects The Wrong Firms In The Long Run

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Listed:
  • Takao Ohkawa
  • Makoto Okamura
  • Noritsugu Nakanishi
  • Kazuharu Kiyono

Abstract

We consider the effects of free entry on the market structure and social welfare of an asymmetric Cournot oligopoly. Even if we allow for the existence of different types of firms initially, only one type (in almost all cases) can survive in the long run. Free entry leads an economy to a symmetric equilibrium, in which the excess entry theorem holds. Further, we consider the socially optimal policy for this economy. In cases of either (i) a concave demand (which implies strategic substitutability) or (ii) strategic complementarity (which implies a convex demand), the type of firms that should remain in the market to achieve social optimality does not necessarily coincide with the type of firms that will survive in the long run. The market may select not only the wrong number of firms but also the wrong type of firms in the long run. Copyright 2005 by the Economics Department Of The University Of Pennsylvania And Osaka University Institute Of Social And Economic Research Association.

Suggested Citation

  • Takao Ohkawa & Makoto Okamura & Noritsugu Nakanishi & Kazuharu Kiyono, 2005. "The Market Selects The Wrong Firms In The Long Run ," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 46(4), pages 1143-1165, November.
    • Handle: RePEc:ier:iecrev:v:46:y:2005:i:4:p:1143-1165
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    Cited by:

    1. C. Simon Fan & Yifan Hu, 2006. "A Signaling Model of Quality and Export: with application to dumping," DEGIT Conference Papers c011_058, DEGIT, Dynamics, Economic Growth, and International Trade.
    2. Nobuhiro Mori & Makoto Okamura & Takao Ohkawa, 2020. "Economic Regulation in the Consumer Loans Market," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 48(4), pages 447-459, December.
    3. Toulemonde, Eric, 2017. "Does the market deliver the right technology?," Economics Letters, Elsevier, vol. 150(C), pages 95-98.
    4. Jinji, Naoto, 2014. "Comparative statics for oligopoly: A generalized result," Economics Letters, Elsevier, vol. 124(1), pages 79-82.
    5. Koichi Kagitani & Takao Ohkawa & Makoto Okamura, 2016. "Does the Excess Entry Theorem Hold in a Differentiated Oligopoly?," Manchester School, University of Manchester, vol. 84(3), pages 340-362, June.
    6. Laszlo Goerke, 2022. "Endogenous Market Structure and Partisan Competition Authorities," IAAEU Discussion Papers 202201, Institute of Labour Law and Industrial Relations in the European Union (IAAEU).
    7. Kazuharu Kiyono & Jota Ishikawa, 2013. "Reexamination of Strategic Public Policies," The Japanese Economic Review, Japanese Economic Association, vol. 64(2), pages 201-231, June.
    8. Batlome Janjgava, 2013. "Free Entry and Social Efficiency under Unknown Demand Parameters," CERGE-EI Working Papers wp495, The Center for Economic Research and Graduate Education - Economics Institute, Prague.

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