Social desirability of entry in a bilateral oligopoly—The implications of (non) sunk costs

Arijit Mukherjee and Chenhang Zeng

Mathematical Social Sciences, 2022, vol. 118, issue C, 12-19

Abstract: We show the implications of sunk investments for social efficiency of downstream-entry in a bilateral oligopoly. The possibility of socially excessive entry increases as the percentage of non-sunk investments increases. If there are no sunk investments or bargaining for the input prices occurs before investments as in the “ex-ante bargaining”, entry is always socially excessive. These results hold under both two-part tariff and linear input pricing.

Keywords: Bargaining; Bilateral oligopoly; Fixed costs; Excessive entry; Insufficient entry (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eee:matsoc:v:118:y:2022:i:c:p:12-19

DOI: 10.1016/j.mathsocsci.2022.05.002

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