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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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Bibliographic Info

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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Postal: School of Economics University of Nottingham University Park Nottingham NG7 2RD
Phone: (44) 0115 951 5620
Fax: (0115) 951 4159
Web page: http://www.nottingham.ac.uk/economics/
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Keywords: Entry; Profit; Vertical structure; Welfare;

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References

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  1. Arijit Mukherjee, 2007. "Note on a generalized wage rigidity result," Economics Bulletin, AccessEcon, vol. 10(12), pages 1-9.
  2. Greenhut, M L & Ohta, H, 1976. "Related Market Conditions and Interindustrial Mergers," American Economic Review, American Economic Association, vol. 66(3), pages 267-77, June.
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  4. Joshua S. Gans, 2007. "Concentration-Based Merger Tests and Vertical Market Structure," Journal of Law and Economics, University of Chicago Press, vol. 50, pages 661-681.
  5. Arijit Mukherjee, 2009. "Excessive entry in a bilateral oligopoly," Economics Bulletin, AccessEcon, vol. 29(1), pages 199-204.
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Cited by:
  1. Junichiro Ishida & Toshihiro Matsumura & Noriaki Matsushima, 2011. "Market Competition, R&D And Firm Profits In Asymmetric Oligopoly," Journal of Industrial Economics, Wiley Blackwell, vol. 59(3), pages 484-505, 09.
  2. Fanti, Luciano & Meccheri, Nicola, 2014. "Profits and competition under alternative technologies in a unionized duopoly with product differentiation," Research in Economics, Elsevier, vol. 68(2), pages 157-168.
  3. Naylor, Robin & Soegaard, Christian, 2014. "The Effects of Entry in Oligopoly with Bargained Wages," The Warwick Economics Research Paper Series (TWERPS) 1044, University of Warwick, Department of Economics.
  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.

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