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Competition-Accelerating Public Investments




We investigate the effects of infrastructure investments that reduce transport costs. We use a spatial model of Salop (1979). It is well known that the number of firms is excessive at free-entry equilibrium (excess entry theorem). We find that the optimal investment level exceeds the ex post cost-minimising level because investments accelerate competition and reduce the number of entering firms; resulting in the improvement of welfare. We also show that, in cases where the excess-entry theorem is true, the desirable policy is the one accelerating, rather than restricting, competition. Copyright Blackwell Publishing Ltd/University of Adelaide and Flinders University 2005..

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  • Toshihiro Matsumura, 2005. "Competition-Accelerating Public Investments ," Australian Economic Papers, Wiley Blackwell, vol. 44(3), pages 269-274, September.
  • Handle: RePEc:bla:ausecp:v:44:y:2005:i:3:p:269-274

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    References listed on IDEAS

    1. Antonia Cornwell & John Creedy, 1997. "environmental taxes and economic welfare," Books, Edward Elgar Publishing, number 1304.
    2. Creedy, John & Sleeman, Catherine, 2006. "Carbon taxation, prices and welfare in New Zealand," Ecological Economics, Elsevier, vol. 57(3), pages 333-345, May.
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    1. Levin, Mark & Busygin, V. & Popova, E.V., 2016. "Development and Analysis of Strategies for Selecting Models of Mixed Market Participants," Working Papers 3054, Russian Presidential Academy of National Economy and Public Administration.

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