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

  • Arijit Mukherjee

    ()

  • Udo Broll
  • Soma Mukherjee

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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File URL: http://hdl.handle.net/10.1007/s00712-009-0097-4
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Article provided by Springer in its journal Journal of Economics.

Volume (Year): 98 (2009)
Issue (Month): 3 (December)
Pages: 189-201

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Handle: RePEc:kap:jeczfn:v:98:y:2009:i:3:p:189-201
Contact details of provider: Web page: http://www.springerlink.com/link.asp?id=108909

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  4. Arijit Mukherjee & Soma Mukherjee, 2008. "Excess-Entry Theorem: The Implications Of Licensing," Manchester School, University of Manchester, vol. 76(6), pages 675-689, December.
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  8. Masahiro Okuno-Fujiwara & Kotaro Suzumura, 1991. "Symmetric Cournot Oligopoly and Economic Welfare: A Synthesis," Discussion Paper Series a242, Institute of Economic Research, Hitotsubashi University.
  9. Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics.
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  18. Arijit Mukherjee, 2009. "Excessive entry in a bilateral oligopoly," Economics Bulletin, AccessEcon, vol. 29(1), pages 199-204.
  19. repec:ebl:ecbull:v:10:y:2007:i:12:p:1-9 is not listed on IDEAS
  20. 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.
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