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Free Entry, Market Diffusion, and Social Inefficiency with Endogenously Growing Demand

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Author Info

  • Hiroshi Kitamura

    ()
    (Faculty of Economics, Sapporo Gakuin University)

  • Akira Miyaoka

    ()
    (Graduate School of Economics, Osaka University)

  • Misato Sato

    ()
    (Graduate School of Economics, GeorgeWashington University)

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    Abstract

    This paper analyzes market diffusion in the presence of oligopolistic interaction among firms. Market demand is positively related to past market size because of consumer learning, networks, and bandwagon effects. Firms enter the market freely in each period with fixed costs and compete in quantities. We demonstrate that free entry leads to a socially inefficient number of firms over time, and that the nature of the inefficiency changes as the market grows: the number of firms is initially insufficient but eventually excessive. This is in contrast with previous findings in the theoretical literature.

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    Bibliographic Info

    Paper provided by Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP) in its series Discussion Papers in Economics and Business with number 11-04.

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    Length: 30 pages
    Date of creation: Feb 2011
    Date of revision:
    Handle: RePEc:osk:wpaper:1104

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    Web page: http://www.econ.osaka-u.ac.jp/
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    Related research

    Keywords: Free Entry; Market Diffusion; Intertemporal Externalities; Entry Regulation.;

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