Free Entry and Social Efficiency under Unknown Demand Parameters

Batlome Janjgava ()

CERGE-EI Working Papers from The Center for Economic Research and Graduate Education - Economics Institute, Prague

Abstract: In the paper, I examine free entry in homogeneous product markets and its social efficiency. Previous research on free entry in homogeneous product markets has shown that under Cournot oligopoly with fixed setup costs the free entry equilibrium always delivers excessive entry. In contrast, I demonstrate in this paper that free entry along with excessive entry might also lead to a socially insufficient number of firms when a demand parameter uncertainty is considered. My findings support the validity of the traditional wisdom in industrial organization that free entry is desirable for social efficiency and call for revision of restrictive entry regulation practices which been based on previous research findings.

Keywords: free entry; welfare; collusion; beliefs; learning; self-confirming equilibrium; escape dynamics (search for similar items in EconPapers)
JEL-codes: D43 D60 D83 L13 L40 L51 (search for similar items in EconPapers)
Date: 2013-10
New Economics Papers: this item is included in nep-bec, nep-com and nep-ind
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.cerge-ei.cz/pdf/wp/Wp495.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cer:papers:wp495

Access Statistics for this paper

More papers in CERGE-EI Working Papers from The Center for Economic Research and Graduate Education - Economics Institute, Prague Contact information at EDIRC.
Bibliographic data for series maintained by Lucie Vasiljevova ().