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The Political Economy of Entry Barriers

  • Toshihiko Mukoyama

    (University of Virginia)

  • Latchezar Popov

    (University of Virginia)

We study a political economy model of entry barriers. Each period the policymaker determines whether to impose a high barrier to entry, and the special interest groups try to influence the policymaker's decision. Entry is accompanied by creative destruction - when many new firms enter, old firms are more likely to be driven out of the market. Therefore the current incumbents (industry leaders) tend to lobby for a higher entry barrier and potential entrants (industry followers) are likely to lobby for a freer environment for entry. We analyze both static and dynamic versions of the model to examine what kind of environment supports a policy that blocks entry. In the dynamic model, the economy can exhibit various different dynamics. In particular, multiple steady states may arise in equilibrium. (Copyright: Elsevier)

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File URL: http://dx.doi.org/10.1016/j.red.2013.11.002
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Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 17 (2014)
Issue (Month): 3 (July)
Pages: 383-416

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Handle: RePEc:red:issued:12-249
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