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Free Entry and Social Inefficiency under Co-opetition

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  • Hattori, Keisuke
  • Yoshikawa, Takeshi

Abstract

We investigate the social desirability of free entry in the co-opetition model in which firms compete in a homogeneous product market while sharing common property resources that affect market size or consumers' willingness to pay for products. We show that free entry leads to socially excessive or insufficient entry into the market in the case of non-commitment co-opetition, depending on the magnitude of "business stealing" and "common property" effects of entry. On the other hand, in the case of pre-commitment co-opetition, free entry leads to excess entry and a decline in the common property resources. Interestingly, in the latter case, the excess entry result of Mankiw and Whinston (1986) and Suzumura and Kiyono (1987) holds even when there are no entry (set-up) costs for entrants. These results have important policy implications for entry regulations.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 44816.

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Date of creation: 06 Mar 2013
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Handle: RePEc:pra:mprapa:44816

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Keywords: Excess entry; Free entry; Co-opetition; Entry regulations; Common property resource;

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  1. Arghya Ghosh & Hodaka Morita, 2007. "Free entry and social efficiency under vertical oligopoly," RAND Journal of Economics, RAND Corporation, vol. 38(2), pages 541-554, 06.
  2. Yiquan Gu & Tobias Wenzel, 2007. "A Note on the Excess Entry Theorem in Spatial Models with Elastic Demand," Ruhr Economic Papers, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen 0033, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
  3. Steven T. Berry & Joel Waldfogel, 1999. "Free Entry and Social Inefficiency in Radio Broadcasting," RAND Journal of Economics, The RAND Corporation, vol. 30(3), pages 397-420, Autumn.
  4. Kühn, Kai-Uwe & Vives, Xavier, 1995. "Excess Entry, Vertical Integration and Welfare," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1293, C.E.P.R. Discussion Papers.
  5. Shoji Haruna & Rajeev Goel, 2011. "R&D, free entry, and social inefficiency," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 20(1), pages 89-101.
  6. Konishi, Hideki & Okuno-Fujiwara, Masahiro & Suzumura, Kotaro, 1990. "Oligopolistic competition and economic welfare : A general equilibrium analysis of entry regulation and tax-subsidy schemes," Journal of Public Economics, Elsevier, Elsevier, vol. 42(1), pages 67-88, June.
  7. C.C. von Weizsaker, 1980. "A Welfare Analysis of Barriers to Entry," Bell Journal of Economics, The RAND Corporation, The RAND Corporation, vol. 11(2), pages 399-420, Autumn.
  8. Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics.
  9. 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.
  10. Varian, Hal R., 1995. "Entry and cost reduction," Japan and the World Economy, Elsevier, Elsevier, vol. 7(4), pages 399-410, November.
  11. Matsumura, Toshihiro & Okamura, Makoto, 2006. "Equilibrium number of firms and economic welfare in a spatial price discrimination model," Economics Letters, Elsevier, Elsevier, vol. 90(3), pages 396-401, March.
  12. Suzumura, Kotaro & Kiyono, Kazuharu, 1987. "Entry Barriers and Economic Welfare," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 54(1), pages 157-67, January.
  13. Arghya Ghosh & Souresh Saha, 2007. "Excess Entry in the Absence of Scale Economies," Economic Theory, Springer, Springer, vol. 30(3), pages 575-586, March.
  14. Arijit Mukherjee & Soma Mukherjee, 2008. "Excess-Entry Theorem: The Implications Of Licensing," Manchester School, University of Manchester, vol. 76(6), pages 675-689, December.
  15. Jaehong Kim, 1997. "Inefficiency of the Subgame Optimal Entry Regulation," RAND Journal of Economics, The RAND Corporation, vol. 28(1), pages 25-36, Spring.
  16. Okuno-Fujiwara, Masahiro & Suzumura, Kotaro, 1993. "Symmetric Cournot Oligopoly and Economic Welfare: A Synthesis," Economic Theory, Springer, Springer, vol. 3(1), pages 43-59, January.
  17. Spence, Michael, 1976. "Product Selection, Fixed Costs, and Monopolistic Competition," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 43(2), pages 217-35, June.
  18. Perry, Martin K, 1984. "Scale Economies, Imperfect Competition, and Public Policy," Journal of Industrial Economics, Wiley Blackwell, Wiley Blackwell, vol. 32(3), pages 313-33, March.
  19. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
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