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Social desirability of entry in a bilateral oligopoly—The implications of (non) sunk costs

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  • Mukherjee, Arijit
  • Zeng, Chenhang

Abstract

We show the implications of sunk investments for social efficiency of downstream-entry in a bilateral oligopoly. The possibility of socially excessive entry increases as the percentage of non-sunk investments increases. If there are no sunk investments or bargaining for the input prices occurs before investments as in the “ex-ante bargaining”, entry is always socially excessive. These results hold under both two-part tariff and linear input pricing.

Suggested Citation

  • Mukherjee, Arijit & Zeng, Chenhang, 2022. "Social desirability of entry in a bilateral oligopoly—The implications of (non) sunk costs," Mathematical Social Sciences, Elsevier, vol. 118(C), pages 12-19.
    • Handle: RePEc:eee:matsoc:v:118:y:2022:i:c:p:12-19
    DOI: 10.1016/j.mathsocsci.2022.05.002
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