Free Entry, Market Diffusion, and Social Inefficiency with Endogenously Growing Demand
This paper analyzes market diffusion in the presence of oligopolistic interaction among firms. Market demand is positively related to past market size because of consumer learning, networks, and bandwagon effects. Firms enter the market freely in each period with fixed costs and compete in quantities. We demonstrate that free entry leads to a socially inefficient number of firms over time, and that the nature of the inefficiency changes as the market grows: the number of firms is initially insufficient but eventually excessive. This is in contrast with previous findings in the theoretical literature.
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|Date of creation:||Feb 2011|
|Date of revision:|
|Contact details of provider:|| Web page: http://www.econ.osaka-u.ac.jp/|
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