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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. Haruna, Shoji, 1996. "Industry equilibrium, uncertainty, and futures markets," International Journal of Industrial Organization, Elsevier, vol. 14(1), pages 53-70.
    2. 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.
    3. Schmidt, Klaus M., 1996. "Managerial Incentives and Product Market Competition," CEPR Discussion Papers 1382, C.E.P.R. Discussion Papers.
    4. Michael Raith, 2003. "Competition, Risk, and Managerial Incentives," American Economic Review, American Economic Association, vol. 93(4), pages 1425-1436, September.
    5. David Scharfstein, 1988. "Product-Market Competition and Managerial Slack," RAND Journal of Economics, The RAND Corporation, vol. 19(1), pages 147-155, Spring.
    6. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
    7. Mohamed Jellal & Fran├žois-Charles Wolff, 2005. "Free Entry under Uncertainty," Journal of Economics, Springer, vol. 85(1), pages 39-63, July.
    8. 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.
    9. Ghosal, Vivek, 1996. "Does uncertainty influence the number of firms in an industry?," Economics Letters, Elsevier, vol. 50(2), pages 229-236, February.
    10. Klaus M. Schmidt, 1997. "Managerial Incentives and Product Market Competition," Review of Economic Studies, Oxford University Press, vol. 64(2), pages 191-213.
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