Entry Barriers and Economic Welfare

Abstract

The relationship between economic welfare and the number of firms in a quasi-Cournot market is examined. In the first place, we presuppose the existence of a strong ("first-best") government that can enforce the marginal-cost principle to the firms along with regulating the number of firms. It is shown that there exist excessive number of firms at the free-entry quasiCournot equilibrium vis-a-vis the "first-best" welfare maximizing number of firms. The thrust of this result essentially survives even if we replace a utopian "first-best" government by a "secondbest" government that leaves the firms to pursue their respective profit maximization freely and engages solely in regulating the number of firms. It can be shown that the excess entry prevails again in this "second-best" world.

Long-run welfare effect of energy conservation regulation

“…strategies are strategic substitutes), as shown by Mankiw and Whinston (1986) and Suzumura and Kiyono (1987). This finding implies that directly regulating the number of entering firms may also improve welfare.…”

“…Energy conservation regulation has two main advantages over direct entry regulation, as discussed by Mankiw and Whinston (1986) and Suzumura and Kiyono (1987). 3 First, energy conservation regulation increases both the total social surplus and consumer welfare, while direct entry regulation increases the total social surplus but reduces consumer welfare.…”

“…Some readers might suspect that our analysis is simply a variant of the excess entry theorem shown by Mankiw and Whinston (1986) and Suzumura and Kiyono (1987), considering that an increase in fixed cost I is essential and that energy conservation regulation is not essential. They might guess that an increase in I directly reduces the number of entering firms and improves welfare.…”

Horizontal Mergers in the Presence of Vertical Relationships

“…1 Mankiw and Whinston (1986) and Suzumura and Kiyono (1987) show that, under a Cournot oligopoly model with fixed set-up costs, the level of entry in the free-entry equilibrium is socially excessive. Ghosh and Morita (2007) find that free entry can lead to a socially insufficient number of firms in a successive oligopoly model, but it can still be socially excessive under a range of parameterizations.…”

“…It is possible if the number of upstream firms is socially excessive. Mankiw and Whinston (1986) and Suzumura and Kiyono (1987) show that the free-entry number of firms in a homogenous products Cournot oligopoly is socially excessive. 10 In a vertical oligopoly framework such as ours, the free-entry number of upstream firms can be socially insufficient or excessive (see, for example, Ghosh and Morita, 2007).…”