Efficient regulated entry in competitive markets with demand uncertainty

Raúl Bajo‐Buenestado
Authors registered in the RePEc Author Service: Raúl Bajo-Buenestado

International Journal of Economic Theory, 2023, vol. 19, issue 2, 413-422

Abstract: It is well‐known that, in a competitive market, the number of firms in a free‐entry equilibrium is the efficient one. This paper shows that this textbook result breaks down if firms face demand uncertainty. In this case, entry is excessive relative to the optimum and, therefore, regulation improves market efficiency. This occurs because, in the absence of regulation, entry is motivated by the profits that firms expect to receive if market demand turns out to be high. However, when choosing the optimal regulated entry, the planner also considers that some surplus is lost if demand turns out to be low.

Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1111/ijet.12359

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:bla:ijethy:v:19:y:2023:i:2:p:413-422

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=1742-7355

Access Statistics for this article

International Journal of Economic Theory is currently edited by Kazuo Nishimura and Makoto Yano

More articles in International Journal of Economic Theory from The International Society for Economic Theory
Bibliographic data for series maintained by Wiley Content Delivery ().