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Free Entrance and Social Welfare. Explaining the Causes of Excessive Entry Bias

Author

Listed:
  • Francisco Galera

    (School of Economics and Business Administration, University of Navarra)

  • Pedro Garcia-del-Barrio

    (School of Economics and Business Administration, University of Navarra)

Abstract

The economic theory has proved that free entry is not always advantageous from a social welfare point of view. Fro instance, a number of inefficiencies can arise from free entry in the presence of fixed set-up costs. Then, an excessive number of firms can usually be settled in homogeneous produc markets within an imperfect competition framework. The economic forces underlying the entry biases are somewhat obscure yet. This paper claims that capacity constraints and diseconomies of scale ought to be driving the discussion of this issue. The characteristics of the cost function, rather than other features, play the major role and should attract the attention of the future research effort. The paper develops an example with which to illustrate the discussion.

Suggested Citation

  • Francisco Galera & Pedro Garcia-del-Barrio, 2005. "Free Entrance and Social Welfare. Explaining the Causes of Excessive Entry Bias," Faculty Working Papers 05/05, School of Economics and Business Administration, University of Navarra.
    • Handle: RePEc:una:unccee:wp0505
    as

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    File URL: http://www.unav.edu/documents/10174/6546776/1132755707_wp0505.pdf
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    References listed on IDEAS

    as
    1. 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.
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    More about this item

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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