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The welfare effects of entry: the role of the input market

Author

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  • Arijit Mukherjee

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  • Udo Broll
  • Soma Mukherjee

Abstract

In a successive Cournot oligopoly, we show the welfare effects of entry in the final goods market with no scale economies but with cost difference between the firms. If the input market is very concentrated, entry in the final goods market always increases welfare. If the input market is moderately concentrated, entry in the final goods market reduces welfare if the entrant is moderately cost inefficient than the incumbents. If the input market is highly competitive, entry in the final goods market reduces welfare if the entrant is very much cost inefficient than the incumbents. Hence, entry in the final goods market is more desirable under a concentrated input market. It follows from our analysis that entry increases the profits of the incumbent final goods producers if their marginal costs are sufficiently lower than the entrant’s marginal cost.
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Suggested Citation

  • Arijit Mukherjee & Udo Broll & Soma Mukherjee, 2009. "The welfare effects of entry: the role of the input market," Journal of Economics, Springer, vol. 98(3), pages 189-201, December.
  • Handle: RePEc:kap:jeczfn:v:98:y:2009:i:3:p:189-201
    DOI: 10.1007/s00712-009-0097-4
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Naylor, Robin & Soegaard, Christian Author-workplace-Name University of Warwick, 2018. "The Effects of Entry in Oligopolistic Trade with Bargained Input Prices," The Warwick Economics Research Paper Series (TWERPS) 1148, University of Warwick, Department of Economics.
    2. Matsushima, Noriaki & Mizuno, Tomomichi, 2012. "Profit-enhancing competitive pressure in vertically related industries," Journal of the Japanese and International Economies, Elsevier, vol. 26(1), pages 142-152.
    3. Kazuhiro Takauchi, 2014. "Rules of Origin and Strategic Choice of Compliance," Journal of Industry, Competition and Trade, Springer, vol. 14(2), pages 287-302, June.
    4. Ioannis N. Pinopoulos, 2014. "A note on the effects of downstream free entry on wholesale pricing," Discussion Paper Series 2014_05, Department of Economics, University of Macedonia, revised Sep 2014.
    5. Fanti, Luciano & Meccheri, Nicola, 2014. "Profits and competition under alternative technologies in a unionized duopoly with product differentiation," Research in Economics, Elsevier, vol. 68(2), pages 157-168.
    6. Yamada, Mai, 2016. "The Optimal Trading Partner for an Upstream Monopolist," MPRA Paper 70325, University Library of Munich, Germany.
    7. Naylor, Robin A & Soegaard, Christian, 2014. "The Effects of Entry in Oligopoly with Bargained Wages," The Warwick Economics Research Paper Series (TWERPS) 1044, University of Warwick, Department of Economics.
    8. Junichiro Ishida & Toshihiro Matsumura & Noriaki Matsushima, 2011. "Market Competition, R&D And Firm Profits In Asymmetric Oligopoly," Journal of Industrial Economics, Wiley Blackwell, vol. 59(3), pages 484-505, September.
    9. repec:ove:journl:aid:11393 is not listed on IDEAS
    10. Arijit Mukherjee & Achintya Ray, 2014. "Entry, Profit and Welfare under Asymmetric R&D Costs," Manchester School, University of Manchester, vol. 82(3), pages 284-295, June.

    More about this item

    Keywords

    Entry; Profit; Vertical structure; Welfare; L13; L50;

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L50 - Industrial Organization - - Regulation and Industrial Policy - - - General

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