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Entry Regulation and the Influence of an Incumbent Special Interest Group

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  • John Evans
  • John Fingleton
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    Abstract

    The literature on both entry deterrence and the influence of special interest groups is extensive. In this paper we attempt to marry these strands of literature by developing a model of entry deterrence through interest group influence in an entry re-regulation context. In contrast to other entry deterrence models, we are able to investigate how product market rivalry affects the regulator's equilibrium entry decision, firms' output decisions, entry deterring activities and equilibrium welfare. We find that in equilibrium more collusive industries tend to lobby more but that the regulator attempts to compensate for weak price rivalry by allowing greater entry. The latter effect tends to offset the former, possibly entirely so that the overall welfare effect is ambiguous.

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    File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2002/wp-cesifo-2002-10/cesifo_wp787.pdf
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    Bibliographic Info

    Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 787.

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    Date of creation: 2002
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    Handle: RePEc:ces:ceswps:_787

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    Related research

    Keywords: entry regulation; entry deterrence; incumbent lobby group; Quasi-Cournot conjectural variation.;

    References

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    1. Stephen Coate & Timothy Besley, 2000. "Elected versus Appointed Regulators: Theory and Evidence," NBER Working Papers 7579, National Bureau of Economic Research, Inc.
    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. Laffont, Jean-Jacques, 1996. "Industrial policy and politics," International Journal of Industrial Organization, Elsevier, vol. 14(1), pages 1-27.
    4. McCormick, Robert E & Shughart, William F, II & Tollison, Robert D, 1984. "The Disinterest in Deregulation," American Economic Review, American Economic Association, vol. 74(5), pages 1075-79, December.
    5. Seade, Jesus K, 1980. "On the Effects of Entry," Econometrica, Econometric Society, vol. 48(2), pages 479-89, March.
    6. Becker, Gary S, 1983. "A Theory of Competition among Pressure Groups for Political Influence," The Quarterly Journal of Economics, MIT Press, vol. 98(3), pages 371-400, August.
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    Cited by:
    1. Klapper, Leora & Laeven, Luc & Rajan, Raghuram G, 2004. "Business Environment and Firm Entry: Evidence from International Data," CEPR Discussion Papers 4366, C.E.P.R. Discussion Papers.

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