Does the entrance fee for a monopoly platform with monopolistic competition eliminate socially desirable products?

Ming Chung Chang, Hsiao-Ping Peng and Yan-Ching Ho

International Journal of Economic Theory, 2015, vol. 11, issue 3, 295-310

Abstract: type="main" xml:lang="en">

This paper is concerned with a monopoly platform in which firms compete by setting quantities, each producing a variety of differentiated goods. Should a firm desire to enter the platform, it must pay an entrance fee to the platform owner, as well as incur a fixed setup cost. Since the platform can be maintained at zero cost, the platform owner aims to maximize the total entrance fee revenue. When a product is introduced, it reduces the prices of the other goods, thereby adversely affecting the revenue of other firms. Under condition of free entry, the entering firm does not take this effect into account. In contrast, the platform owner does take it into account. As a result, the entrance fee may act to raise welfare by eliminating socially undesirable goods.

Date: 2015
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