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Free Entrance and Social Welfare. Explaining the Causes of Excessive Entry Bias

Francisco Galera () and Pedro Garcia-del-Barrio
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Francisco Galera: School of Economics and Business Administration, University of Navarra

No 05/05, Faculty Working Papers from School of Economics and Business Administration, University of Navarra

Abstract: The economic theory has proved that free entry is not always advantageous from a social welfare point of view. Fro instance, a number of inefficiencies can arise from free entry in the presence of fixed set-up costs. Then, an excessive number of firms can usually be settled in homogeneous produc markets within an imperfect competition framework. The economic forces underlying the entry biases are somewhat obscure yet. This paper claims that capacity constraints and diseconomies of scale ought to be driving the discussion of this issue. The characteristics of the cost function, rather than other features, play the major role and should attract the attention of the future research effort. The paper develops an example with which to illustrate the discussion.

JEL-codes: D24 D43 L13 (search for similar items in EconPapers)
Pages: 7 pages
Date: 2005-05-01
New Economics Papers: this item is included in nep-ent and nep-ind
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