EXCESS-ENTRY THEOREM: THE IMPLICATIONS OF LICENSING

Arijit Mukherjee and Soma Mukherjee

Manchester School, 2008, vol. 76, issue 6, pages 675-689

Abstract: We show that, in the presence of technology licensing, entry in an industry with Cournot competition may lead to a socially insufficient, number of firms. Insufficient entry occurs if the own marginal cost of the entrant is sufficiently high. Hence, the justification for anticompetitive entry regulation due to the standard excess-entry result may not be justified in the presence of licensing. However, if the own marginal cost of the entrant is very low, licensing may create excessive entry for those entry costs where entry does not occur without licensing; thus licensing reduces social welfare though it increases competition. Copyright © 2008 The Authors. Journal compilation © 2008 Blackwell Publishing Ltd and The University of Manchester.

Date: 2008
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