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Social efficiency of entry with market leaders

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  • Arijit Mukherjee

Abstract

We offer a new respective to the social efficiency of entry by considering an industry with a quantity setting leader and free entry of followers. We show that whether free entry with a homogeneous product is socially excessive or insufficient depends on the identity of the leader (which is either domestic or foreign), the marginal cost difference between the leader and the followers, and whether there are scale economies. In a closed economy, entry is socially excessive (insufficient) in the presence of scale economies if the marginal cost difference between the leader and the followers is small (large), but without scale economies, entry is always socially insufficient. In an open economy with the foreign leader, entry is always socially insufficient. Our results show concern to the anti-competitive entry regulation policies following the previous literature showing socially excessive entry in Cournot oligopolies with homogeneous products and perfectly competitive input sector.

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Paper provided by University of Nottingham, School of Economics in its series Discussion Papers with number 10/07.

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Handle: RePEc:not:notecp:10/07

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Keywords: Excessive entry; Follower; Insufficient entry; Leader; Stackelberg competition;

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Cited by:
  1. Marjit, Sugata & Mukherjee, Arijit, 2013. "Foreign competition and social efficiency of entry," Economic Modelling, Elsevier, Elsevier, vol. 32(C), pages 108-112.
  2. Kitamura, Hiroshi & Miyaoka, Akira & Sato, Misato, 2013. "Free entry, market diffusion, and social inefficiency with endogenously growing demand," Journal of the Japanese and International Economies, Elsevier, vol. 29(C), pages 98-116.
  3. Etro, Federico, 2013. "Advertising and search engines. A model of leadership in search advertising," Research in Economics, Elsevier, Elsevier, vol. 67(1), pages 25-38.

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