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

Hiroshi Kitamura (), Akira Miyaoka () and Misato Sato ()
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Hiroshi Kitamura: Faculty of Economics, Sapporo Gakuin University
Akira Miyaoka: Graduate School of Economics, Osaka University
Misato Sato: Graduate School of Economics, GeorgeWashington University

No 11-04, Discussion Papers in Economics and Business from Osaka University, Graduate School of Economics

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.

Keywords: Free Entry; Market Diffusion; Intertemporal Externalities; Entry Regulation. (search for similar items in EconPapers)
JEL-codes: D11 L11 L14 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2011-02
New Economics Papers: this item is included in nep-com and nep-ind
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Persistent link: https://EconPapers.repec.org/RePEc:osk:wpaper:1104

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