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

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Author Info
Arijit Mukherjee
Udo Broll
Soma Mukherjee

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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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  1. Arijit Mukherjee & Soma Mukherjee, 2008. "Excess-Entry Theorem: The Implications Of Licensing," Manchester School, University of Manchester, vol. 76(6), pages 675-689, December. [Downloadable!] (restricted)
  2. Ghosh, Arghya & Morita, Hodaka, 2007. "Social desirability of free entry: A bilateral oligopoly analysis," International Journal of Industrial Organization, Elsevier, vol. 25(5), pages 925-934, October. [Downloadable!] (restricted)
  3. Ishikawa, Jota & Spencer, Barbara J., 1999. "Rent-shifting export subsidies with an imported intermediate product," Journal of International Economics, Elsevier, vol. 48(2), pages 199-232, August. [Downloadable!] (restricted)
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  4. Masahiro Okuno-Fujiwara & Kotaro Suzumura, 1991. "Symmetric Cournot Oligopoly and Economic Welfare: A Synthesis," Discussion Paper Series a242, Institute of Economic Research, Hitotsubashi University.
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  5. Arijit Mukherjee, . "Excessive entry in a bilateral oligopoly," Discussion Papers 08/02, University of Nottingham, School of Economics. [Downloadable!]
  6. Naylor, Robin, 2002. "The Effects Of Entry In Bilateral Oligopoly," The Warwick Economics Research Paper Series (TWERPS) 638, University of Warwick, Department of Economics. [Downloadable!]
  7. Spence, Michael, 1976. "Product Selection, Fixed Costs, and Monopolistic Competition," Review of Economic Studies, Blackwell Publishing, vol. 43(2), pages 217-35, June. [Downloadable!] (restricted)
  8. Arijit Mukherjee, . "Note on a generalized wage rigidity result," Discussion Papers 07/04, University of Nottingham, School of Economics. [Downloadable!]
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  9. 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.
  10. Anderson, Simon P & de Palma, Andre & Nesterov, Yurii, 1995. "Oligopolistic Competition and the Optimal Provision of Products," Econometrica, Econometric Society, vol. 63(6), pages 1281-1301, November. [Downloadable!] (restricted)
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  11. Perry, Martin K, 1984. "Scale Economies, Imperfect Competition, and Public Policy," Journal of Industrial Economics, Blackwell Publishing, vol. 32(3), pages 313-33, March. [Downloadable!] (restricted)
  12. Klemperer, Paul D, 1988. "Welfare Effects of Entry into Markets with Switching Costs," Journal of Industrial Economics, Blackwell Publishing, vol. 37(2), pages 159-65, December. [Downloadable!] (restricted)
  13. Suzumura, Kotaro & Kiyono, Kazuharu, 1987. "Entry Barriers and Economic Welfare," Review of Economic Studies, Blackwell Publishing, vol. 54(1), pages 157-67, January. [Downloadable!] (restricted)
  14. Abiru, Masahiro & Nahata, Babu & Raychaudhuri, Subhashis & Waterson, Michael, 1998. "Equilibrium structures in vertical oligopoly," Journal of Economic Behavior & Organization, Elsevier, vol. 37(4), pages 463-480, December. [Downloadable!] (restricted)
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  15. 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. [Downloadable!] (restricted)
  16. Joshua S. Gans, 2007. "Concentration-Based Merger Tests and Vertical Market Structure," Journal of Law & Economics, University of Chicago Press, vol. 50, pages 661-681. [Downloadable!]
  17. Arijit Mukherjee, 2007. "Entry in a Stackelberg perfect equilibrium," Economics Bulletin, Economics Bulletin, vol. 12(33), pages 1-6. [Downloadable!]
  18. Arghya Ghosh & Souresh Saha, 2007. "Excess Entry in the Absence of Scale Economies," Economic Theory, Springer, vol. 30(3), pages 575-586, March. [Downloadable!] (restricted)
  19. 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. [Downloadable!] (restricted)
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  20. Dhillon, Amrita & Petrakis, Emmanuel, 2002. "A generalised wage rigidity result," International Journal of Industrial Organization, Elsevier, vol. 20(3), pages 285-311, March. [Downloadable!] (restricted)
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