Social efficiency of entry with market leaders
We offer a new respective to the social efficiency of entry by considering an industry with a quantity setting leader and free entry of followers. We show that whether free entry with a homogeneous product is socially excessive or insufficient depends on the identity of the leader (which is either domestic or foreign), the marginal cost difference between the leader and the followers, and whether there are scale economies. In a closed economy, entry is socially excessive (insufficient) in the presence of scale economies if the marginal cost difference between the leader and the followers is small (large), but without scale economies, entry is always socially insufficient. In an open economy with the foreign leader, entry is always socially insufficient. Our results show concern to the anti-competitive entry regulation policies following the previous literature showing socially excessive entry in Cournot oligopolies with homogeneous products and perfectly competitive input sector.
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