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Social efficiency of entry in a vertically related industry

Author

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  • Basak, Debasmita
  • Mukherjee, Arijit

Abstract

We provide a new perspective to the literature on social desirability of entry by showing that, if the input supplier has market power, social desirability of entry of the final goods producers depends on returns to scale. Entry in the final goods market can be socially insufficient under constant returns to scale technology, but it can be socially excessive under decreasing returns to scale technologies if the cost of entry is low so that the final goods market is sufficiently competitive. Hence, the anti-competitive entry regulation policies are more justifiable if the final goods market is characterised by decreasing returns to scale technologies.

Suggested Citation

  • Basak, Debasmita & Mukherjee, Arijit, 2016. "Social efficiency of entry in a vertically related industry," Economics Letters, Elsevier, vol. 139(C), pages 8-10.
  • Handle: RePEc:eee:ecolet:v:139:y:2016:i:c:p:8-10
    DOI: 10.1016/j.econlet.2015.12.003
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    References listed on IDEAS

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    More about this item

    Keywords

    Excess entry; Insufficient entry; Decreasing returns to scale;

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General

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