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

Author

Listed:
  • Hiroshi Kitamura

    (Faculty of Economics, Kyoto Sangyo 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 the nature of the ineffciency under free entry can change as the market grows, and more importantly, that S-shaped diffusion can be a signal that the number of firms under free entry is initially insuffcient, but eventually excessive.

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-Rev, Osaka University, Graduate School of Economics, revised Nov 2012.
    • Handle: RePEc:osk:wpaper:1104r
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    References listed on IDEAS

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    More about this item

    Keywords

    Free Entry; Market Diffusion; Intertemporal Externalities; Oligopolistic Interaction; S-shaped Diffusion.;
    All these keywords.

    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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