Social efficiency of entry in a vertically related industry revisited

Hang Cao and Leonard F.S. Wang

Economics Letters, 2020, vol. 192, issue C

Abstract: We revisit the social desirability of entry in a vertical structure by showing that, if the input supplier has market power, social desirability of entry of downstream producers depends on the asymmetric marginal costs among competing firms. Under constant returns to scale, entry in the final goods market can be socially insufficient when entrants are inefficient, but it can be socially excessive if the cost of entrants is sufficiently low compared to the incumbents.

Keywords: Vertical structure; Excess entry; Insufficient entry; Cost asymmetry (search for similar items in EconPapers)
JEL-codes: L13 L40 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:192:y:2020:i:c:s0165176520301488

DOI: 10.1016/j.econlet.2020.109200

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