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A note on free entry under uncertainty: The role of asymmetric information

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  • Piccolo, Salvatore

Abstract

In a model of competing managerial firms I show that the equilibrium number of firms decreases with uncertainty if entry is relatively more costly than monitoring. The result adds to the earlier contributions and is consistent with the available evidence.

Suggested Citation

  • Piccolo, Salvatore, 2011. "A note on free entry under uncertainty: The role of asymmetric information," Economics Letters, Elsevier, vol. 111(3), pages 256-259, June.
    • Handle: RePEc:eee:ecolet:v:111:y:2011:i:3:p:256-259
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    References listed on IDEAS

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    1. Ghosal, Vivek, 2007. "Small is Beautiful but Size Matters: The Asymmetric Impact of Uncertainty and Sunk Costs on Small and Large Businesses," MPRA Paper 5461, University Library of Munich, Germany.
    2. Michael Raith, 2003. "Competition, Risk, and Managerial Incentives," American Economic Review, American Economic Association, vol. 93(4), pages 1425-1436, September.
    3. David Scharfstein, 1988. "Product-Market Competition and Managerial Slack," RAND Journal of Economics, The RAND Corporation, vol. 19(1), pages 147-155, Spring.
    4. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
    5. Mohamed Jellal & François-Charles Wolff, 2005. "Free Entry under Uncertainty," Journal of Economics, Springer, vol. 85(1), pages 39-63, July.
    6. Appelbaum, Elie & Katz, Eliakim, 1986. "Measures of Risk Aversion and Comparative Statics of Industry Equilibrium," American Economic Review, American Economic Association, vol. 76(3), pages 524-529, June.
    7. Ghosal, Vivek, 1996. "Does uncertainty influence the number of firms in an industry?," Economics Letters, Elsevier, vol. 50(2), pages 229-236, February.
    8. Klaus M. Schmidt, 1997. "Managerial Incentives and Product Market Competition," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 64(2), pages 191-213.
    9. Haruna, Shoji, 1996. "Industry equilibrium, uncertainty, and futures markets," International Journal of Industrial Organization, Elsevier, vol. 14(1), pages 53-70.
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    Cited by:

    1. Marco de Pinto & Lazlo Goerke & Alberto Palermo, 2023. "Informational Rents and the Excessive Entry Theorem: The Case of Hidden Action," IAAEU Discussion Papers 202301, Institute of Labour Law and Industrial Relations in the European Union (IAAEU).
    2. de Pinto, Marco & Goerke, Laszlo & Palermo, Alberto, 2023. "On the welfare effects of adverse selection in oligopolistic markets," Games and Economic Behavior, Elsevier, vol. 138(C), pages 22-41.

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    More about this item

    Keywords

    Asymmetric information Free entry Uncertainty Managerial firms;

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies

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