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Free entry, market diffusion, and social inefficiency with endogenously growing demand

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  • Kitamura, Hiroshi
  • Miyaoka, Akira
  • Sato, Misato

Abstract

This paper analyzes market diffusion in the presence of oligopolistic interaction among firms. Market demand is positively related to past market size because of consumer learning, networks, and bandwagon effects. Firms enter the market freely in each period with fixed costs and compete in quantities. We demonstrate that the nature of the inefficiency under free entry can change as the market grows, and more importantly, that S-shaped diffusion can be a signal that the number of firms under free entry is initially insufficient, but eventually excessive.

Suggested Citation

  • Kitamura, Hiroshi & Miyaoka, Akira & Sato, Misato, 2013. "Free entry, market diffusion, and social inefficiency with endogenously growing demand," Journal of the Japanese and International Economies, Elsevier, vol. 29(C), pages 98-116.
  • Handle: RePEc:eee:jjieco:v:29:y:2013:i:c:p:98-116
    DOI: 10.1016/j.jjie.2013.06.004
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    More about this item

    Keywords

    Free entry; Market diffusion; Intertemporal externalities; Oligopolistic interaction; S-shaped diffusion;
    All these keywords.

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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