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Welfare Implications of Sequential Entry with Heterogeneous Firms

Author

Listed:
  • Hattori, Keisuke
  • Yamada, Mai

Abstract

Does free entry result in the socially preferred order of market entry for heterogeneous firms? This paper examines the welfare effects of sequential market entry by using a simple entry-deterrence model with heterogeneities in fixed and variable production costs among firms. In particular, we consider the question of whether a less or more efficient firm should be the first entrant into a new market from a welfare perspective. We show that the order of entry whereby a more efficient firm enters the market first may lead to welfare loss due to the less aggressive entry deterrence efforts made by the first entrant. Our findings have important policy implications with regard to the welfare consequences of free entry markets and the privatization of public monopolies through auctions.

Suggested Citation

  • Hattori, Keisuke & Yamada, Mai, 2020. "Welfare Implications of Sequential Entry with Heterogeneous Firms," MPRA Paper 103422, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:103422
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    File URL: https://mpra.ub.uni-muenchen.de/104640/9/MPRA_paper_104640.pdf
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    References listed on IDEAS

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    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies

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