Short term entry barriers may be good for long term competition
Entry barriers encourage competition “for” the market as opposed to “in” the market. Efficient entrants use penetrating strategies while inefficient incumbents harvest the market before leaving. These phenomenon are explored in an infinite horizon game in which history matters. Under some circumstances, higher entry barriers induce entry of efficient firms while lower entry barriers would not. This comes from the expected benefit of future rents. Social welfare may be enhanced as well. This result suggests that a rule of reason should be applied and that entry barriers should not be considered per se anticompetitive.
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- Philippe Aghion & Richard Blundell & Rachel Griffith & Peter Howitt & Susanne Prantl, 2009.
"The Effects of Entry on Incumbent Innovation and Productivity,"
The Review of Economics and Statistics,
MIT Press, vol. 91(1), pages 20-32, February.
- Aghion, Philippe & Blundell, Richard William & Griffith, Rachel & Howitt, Peter & Prantl, Susanne, 2005. "The Effects of Entry on Incumbent Innovation and Productivity," CEPR Discussion Papers 5323, C.E.P.R. Discussion Papers.
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- Aghion, Philippe & Blundell, Richard & Griffith, Rachel & Howitt, Peter & Prantl, Susanne, 2006. "The effects of entry on incumbent innovation and productivity," Discussion Papers, Research Unit: Competition and Innovation SP II 2006-18, Social Science Research Center Berlin (WZB).
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