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A note on the excess entry theorem in spatial models with elastic demand

Yiquan Gu and Tobias Wenzel

International Journal of Industrial Organization, 2009, vol. 27, issue 5, 567-571

Abstract: This paper revisits the excess entry theorem in spatial models according to Vickrey [Vickrey, W.S., 1964. Microstatics. Harcourt, Brace and World, New York] and Salop [Salop, S., 1979. Monopolistic competition with outside goods. Bell Journal of Economics 10, 141-156] while relaxing the assumption of inelastic demand. Using a demand function with a constant demand elasticity, we show that the number of firms that enter a market decreases with the degree of demand elasticity. We find that the excess entry theorem does only hold when the demand elasticity is sufficiently small. Otherwise, there is insufficient entry. In the limiting case of unit elastic demand, the market is monopolized. We broaden our results with a more general transportation cost function.

Keywords: Elastic; demand; Spatial; models; Excess; entry; theorem (search for similar items in EconPapers)
Date: 2009
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Working Paper: A Note on the Excess Entry Theorem in Spatial Models with Elastic Demand (2007) Downloads
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