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Endogenous cost asymmetry and insufficient entry in the absence of scale economies

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  • Arijit Mukherjee

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Abstract

The literature analysing social efficiency of entry argues that entry is always socially excessive in industries with asymmetric cost firms and no scale economies. We show that exogenous cost asymmetry is responsible for this result. In a simple model with endogenous R&D investment by the more cost efficient firm, thus creating endogenous cost asymmetry, we show that entry is socially insufficient instead of excessive if slope of the marginal cost of R&D is not very high.

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File URL: http://hdl.handle.net/10.1007/s00712-011-0255-3
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Bibliographic Info

Article provided by Springer in its journal Journal of Economics.

Volume (Year): 106 (2012)
Issue (Month): 1 (May)
Pages: 75-82

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Handle: RePEc:kap:jeczfn:v:106:y:2012:i:1:p:75-82

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Web page: http://www.springerlink.com/link.asp?id=108909

Related research

Keywords: Excessive entry; Insufficient entry; Cost asymmetry; R&D; L13; L40; L50;

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  1. Jingang Zhao, 2009. "Necessary and sufficient conditions for the optimal number of firms," Journal of Economics, Springer, vol. 98(3), pages 235-246, December.
  2. N. Gregory Mankiw & Michael D. Whinston, 1986. "Free Entry and Social Inefficiency," RAND Journal of Economics, The RAND Corporation, vol. 17(1), pages 48-58, Spring.
  3. Anderson, S. P. & De Palma, A. & Nesterov, Y., . "Oligopolistic competition and the optimal provision of products," CORE Discussion Papers RP -1179, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  4. Okuno-Fujiwara, Masahiro & Suzumura, Kotaro, 1993. "Symmetric Cournot Oligopoly and Economic Welfare: A Synthesis," Economic Theory, Springer, vol. 3(1), pages 43-59, January.
  5. Arghya Ghosh & Souresh Saha, 2007. "Excess Entry in the Absence of Scale Economies," Economic Theory, Springer, vol. 30(3), pages 575-586, March.
  6. Cabral, Luis M. B., 2004. "Simultaneous entry and welfare," European Economic Review, Elsevier, vol. 48(5), pages 943-957, October.
  7. Suzumura, Kotaro & Kiyono, Kazuharu, 1987. "Entry Barriers and Economic Welfare," Review of Economic Studies, Wiley Blackwell, vol. 54(1), pages 157-67, January.
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