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Entry Bias and Product Substitutability

Author

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  • Lin Liu
  • X. Henry Wang

Abstract

The literature has established two kinds of entry bias in imperfectly competitive markets. First, free entry may lead to excessive entry relative to the socially optimal level. Second, free entry may lead to the wrong technology (type of firm) in the market compared to the socially optimal technology. This paper finds a product selection bias, a third kind of entry bias. We show that, in a Cournot market with asymmetric firms and imperfectly substituting goods, free entry may lead to fewer types of goods, more types of goods, or even a different type of good, compared to the social optimum.

Suggested Citation

  • Lin Liu & X. Henry Wang, 2013. "Entry Bias and Product Substitutability," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 169(2), pages 304-319, June.
    • Handle: RePEc:mhr:jinste:urn:sici:0932-4569(201306)169:2_304:ebaps_2.0.tx_2-5
    DOI: 10.1628/093245613X13609094777220
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    References listed on IDEAS

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    1. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
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    Cited by:

    1. Yong-Cong YANG & Pu-Yan NIE, 2016. "Asymmetric competition in food industry with product substitutability," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 62(7), pages 324-333.
    2. Pu-yan Nie, 2014. "Effects of capacity constraints on mixed duopoly," Journal of Economics, Springer, vol. 112(3), pages 283-294, July.

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    More about this item

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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