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Does entry improve welfare? A general equilibrium approach to competition policy

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  • Bertrand Crettez
  • Marie-Cécile Fagart

Abstract

We consider a simple general equilibrium model with imperfect competition. Firms are price taker in the input market and compete à la Cournot in some or all of the product markets (their technology displays constant returns to scale). We show that an increase in the number of firms does not always improve welfare. We also provide a characterization in terms of mark-up rates of the sectors for which entry is welfare enhancing. Thus, this paper challenges the common idea that mergers with no cost synergy are not desirable for consumers.

Suggested Citation

  • Bertrand Crettez & Marie-Cécile Fagart, 2008. "Does entry improve welfare? A general equilibrium approach to competition policy," EconomiX Working Papers 2008-14, University of Paris Nanterre, EconomiX.
    • Handle: RePEc:drm:wpaper:2008-14
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Jacopo Zotti, 2015. "The Long Italian Stagnation and the Welfare Effects of Outsourcing," Working Papers 2015.105, Fondazione Eni Enrico Mattei.
    2. Leonard F. S. Wang & Ji Sun, 2023. "Corporate profit tax, firm entry with unemployment, and income inequality," Bulletin of Economic Research, Wiley Blackwell, vol. 75(2), pages 380-392, April.
    3. Marc Deschamps, 2013. "Pourquoi des politiques de concurrence ?," GREDEG Working Papers 2013-23, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), Université Côte d'Azur, France.
    4. Illtae Ahn & Hyukseung Shin, 2012. "Domestic Welfare Effects Of The Entry Of A Foreign Firm," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 37(2), pages 35-57, June.
    5. Arijit Mukherjee & Udo Broll & Soma Mukherjee, 2009. "The welfare effects of entry: the role of the input market," Journal of Economics, Springer, vol. 98(3), pages 189-201, December.
    6. Jingang Zhao, 2009. "Necessary and sufficient conditions for the optimal number of firms," Journal of Economics, Springer, vol. 98(3), pages 235-246, December.

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    More about this item

    Keywords

    Cournot competition; competition policy; general equilibrium and imperfect competition; effciency;
    All these keywords.

    JEL classification:

    • D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General

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