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Endogenous cost asymmetry and insufficient entry in the absence of scale economies

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  • Arijit Mukherjee

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Abstract

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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Suggested Citation

  • Arijit Mukherjee, 2012. "Endogenous cost asymmetry and insufficient entry in the absence of scale economies," Journal of Economics, Springer, vol. 106(1), pages 75-82, May.
    • Handle: RePEc:kap:jeczfn:v:106:y:2012:i:1:p:75-82
    DOI: 10.1007/s00712-011-0255-3
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    File URL: http://hdl.handle.net/10.1007/s00712-011-0255-3
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    References listed on IDEAS

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    1. Kotaro Suzumura & Kazuharu Kiyono, 1987. "Entry Barriers and Economic Welfare," Review of Economic Studies, Oxford University Press, vol. 54(1), pages 157-167.
    2. Cabral, Luis M. B., 2004. "Simultaneous entry and welfare," European Economic Review, Elsevier, vol. 48(5), pages 943-957, October.
    3. Anderson, Simon P & de Palma, Andre & Nesterov, Yurii, 1995. "Oligopolistic Competition and the Optimal Provision of Products," Econometrica, Econometric Society, vol. 63(6), pages 1281-1301, November.
    4. 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.
    5. 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.
    6. Jingang Zhao, 2009. "Necessary and sufficient conditions for the optimal number of firms," Journal of Economics, Springer, vol. 98(3), pages 235-246, December.
    7. 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.
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    Cited by:

    1. repec:kap:itaxpf:v:24:y:2017:i:5:d:10.1007_s10797-016-9434-z is not listed on IDEAS
    2. Angela C. Chao & Zhengning Pu, 2017. "Corporate Social Responsibility and Environmentally Sound Technology in Endogenous Firm Growth," Sustainability, MDPI, Open Access Journal, vol. 9(2), pages 1-13, February.
    3. Laszlo Goerke, 2017. "Tax evasion in a Cournot oligopoly with endogenous entry," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 24(5), pages 754-779, September.

    More about this item

    Keywords

    Excessive entry; Insufficient entry; Cost asymmetry; R&D; L13; L40; L50;

    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
    • L50 - Industrial Organization - - Regulation and Industrial Policy - - - General

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