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Competition‐Accelerating Public Investments

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  • TOSHIHIRO MATSUMURA

Abstract

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.

Suggested Citation

  • 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
    DOI: 10.1111/j.1467-8454.2005.00264.x
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    Cited by:

    1. Carlos Hernán González-Campo & Vanessa Zamora Mina, 2020. "Comportamiento de los agentes en el comercio electrónico según modelos de localización," Revista Facultad de Ciencias Económicas, Universidad Militar Nueva Granada, vol. 28(1), pages 47-65, June.
    2. Levin, Mark (Левин, Марк) & Busygin, V. (Бусыгин, В.) & Popova, E.V. (Попова, Е.), 2016. "Development and Analysis of Strategies for Selecting Models of Mixed Market Participants [Разработка И Анализ Моделей Выбора Стратегий Участниками Смешанных Рынков]," Working Papers 3054, Russian Presidential Academy of National Economy and Public Administration.

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