Informational Rents and the Excessive Entry Theorem: The Case of Hidden Action

Marco de Pinto, Laszlo Goerke and Alberto Palermo ()
Additional contact information
Marco de Pinto: University of Applied Labour Studies, Mannheim
Alberto Palermo: Institute for Labour Law and Industrial Relations in the EU, University of Trier
Authors registered in the RePEc Author Service: Adrian Chadi

No 202301, IAAEU Discussion Papers from Institute of Labour Law and Industrial Relations in the European Union (IAAEU)

Abstract: Entry in a homogeneous Cournot-oligopoly is excessive if there is business stealing. This prediction assumes that production costs reduce profits and welfare equally. However, this need not be the case. If there is asymmetric information, suppliers or employees can utilize their superior knowledge to extract informational rents. Rent payments reduce profits and deter entry, but affect neither the optimal number of firms nor welfare directly. Therefore, entry becomes insufficient if informational rents are large enough. In the context of a moral hazard model, we show that insufficient entry occurs if entry costs are sufficiently high. Such costs lower the number of firms and, thereby, raise informational rents.

Keywords: Oligopoly; excessive entry; informational rents; moral hazard (search for similar items in EconPapers)
JEL-codes: D43 D82 L51 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2023-01
New Economics Papers: this item is included in nep-com and nep-ind
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.iaaeg.de/images/DiscussionPaper/2023_01.pdf First version, 2023 (application/pdf)

Related works:
Journal Article: Informational rents and the excessive entry theorem: The case of hidden action* (2024)
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:iaa:dpaper:202301

Access Statistics for this paper

More papers in IAAEU Discussion Papers from Institute of Labour Law and Industrial Relations in the European Union (IAAEU) Contact information at EDIRC.
Bibliographic data for series maintained by Adrian Chadi ().