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Free Entry, Market Diffusion, and Social Inefficiency with Endogenously Growing Demand

Author

Listed:
  • Hiroshi Kitamura

    () (Faculty of Economics, Sapporo Gakuin University)

  • Akira Miyaoka

    () (Graduate School of Economics, Osaka University)

  • Misato Sato

    () (Graduate School of Economics, GeorgeWashington University)

Abstract

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.

Suggested Citation

  • Hiroshi Kitamura & Akira Miyaoka & Misato Sato, 2011. "Free Entry, Market Diffusion, and Social Inefficiency with Endogenously Growing Demand," Discussion Papers in Economics and Business 11-04, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
  • Handle: RePEc:osk:wpaper:1104
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    More about this item

    Keywords

    Free Entry; Market Diffusion; Intertemporal Externalities; Entry Regulation.;

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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