Endogenous cost asymmetry and insufficient entry in the absence of scale economies
The literature analysing social efficiency of entry argues that entry is always socially excessive in industries with asymmetric cost firms and no scale economies. We show that exogenous cost asymmetry is responsible for this result. In a simple model with endogenous R&D investment by the more cost efficient firm, thus creating endogenous cost asymmetry, we show that entry is socially insufficient instead of excessive if slope of the marginal cost of R&D is not very high.
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Volume (Year): 106 (2012)
Issue (Month): 1 (May)
Pages: 75-82
| Handle: | RePEc:kap:jeczfn:v:106:y:2012:i:1:p:75-82 |
| DOI: | 10.1007/s00712-011-0255-3 |
| Contact details of provider: | Web page: http://www.springer.com
|
References listed on IDEAS
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- Kotaro Suzumura & Kazuharu Kiyono, 1987. "Entry Barriers and Economic Welfare," Review of Economic Studies, Oxford University Press, vol. 54(1), pages 157-167.
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- ANDERSON, Simon P. & DE PALMA, André & NESTEROV, Yurii, 1994. "Oligopolistic Competition and the Optimal Provision of Products," CORE Discussion Papers 1994034, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Okuno-Fujiwara, Masahiro & Suzumura, Kotaro, 1993. "Symmetric Cournot Oligopoly and Economic Welfare: A Synthesis," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 3(1), pages 43-59, January.
- Masahiro Okuno-Fujiwara & Kotaro Suzumura, 1991. "Symmetric Cournot Oligopoly and Economic Welfare: A Synthesis," Discussion Paper Series a242, Institute of Economic Research, Hitotsubashi University.
- N. Gregory Mankiw & Michael D. Whinston, 1986. "Free Entry and Social Inefficiency," RAND Journal of Economics, The RAND Corporation, vol. 17(1), pages 48-58, Spring.
- Jingang Zhao, 2009. "Necessary and sufficient conditions for the optimal number of firms," Journal of Economics, Springer, vol. 98(3), pages 235-246, December.
- Arghya Ghosh & Souresh Saha, 2007. "Excess Entry in the Absence of Scale Economies," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 30(3), pages 575-586, March. Full references (including those not matched with items on IDEAS)
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