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The welfare effects of entry: the role of the input market

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  • Arijit Mukherjee
  • Udo Broll
  • Soma Mukherjee

Abstract

In a successive Cournot oligopoly, we show the welfare effects of entry in the final goods market with no scale economies but with cost difference between the firms. If the input market is very concentrated, entry in the final goods market always increases welfare. If the input market is moderately concentrated, entry in the final goods market reduces welfare if the entrant is moderately cost inefficient than the incumbents. If the input market is highly competitive, entry in the final goods market reduces welfare if the entrant is very much cost inefficient than the incumbents. Hence, entry in the final goods market is more desirable under a concentrated input market. It follows from our analysis that entry increases the profits of the incumbent final goods producers if their marginal costs are sufficiently lower than the entrant’s marginal cost.

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Paper provided by University of Nottingham, School of Economics in its series Discussion Papers with number 08/12.

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Handle: RePEc:not:notecp:08/12

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Keywords: Entry; Profit; Vertical structure; Welfare;

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Cited by:
  1. Junichiro Ishida & Toshihiro Matsumura & Noriaki Matsushima, 2010. "Market Competition, R&D and Firm Profits in Asymmetric Oligopoly," ISER Discussion Paper, Institute of Social and Economic Research, Osaka University 0777, Institute of Social and Economic Research, Osaka University.
  2. Kazuhiro Takauchi, 2010. "Rules of Origin and Strategic Choice of Compliance," Discussion Papers 1013, Graduate School of Economics, Kobe University.
  3. Fanti, Luciano & Meccheri, Nicola, 2014. "Profits and competition under alternative technologies in a unionized duopoly with product differentiation," Research in Economics, Elsevier, Elsevier, vol. 68(2), pages 157-168.
  4. Matsushima, Noriaki & Mizuno, Tomomichi, 2012. "Profit-enhancing competitive pressure in vertically related industries," Journal of the Japanese and International Economies, Elsevier, vol. 26(1), pages 142-152.
  5. Naylor, Robin & Soegaard, Christian, 2014. "The Effects of Entry in Oligopoly with Bargained Wages," The Warwick Economics Research Paper Series (TWERPS), University of Warwick, Department of Economics 1044, University of Warwick, Department of Economics.

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