The political economy of entry barriers

Abstract

We study a political economy model of entry barriers. Each period the policymaker determines whether to impose a high barrier on entry, and the special interest groups try to influence the policymaker's decision. Entry is accompanied by creative destructionwhen many new firms enter, old firms are more likely to be driven out of the market. Therefore the current incumbents (industry leaders) tend to lobby for a higher entry barrier and potential entrants (industry followers) are likely to lobby for a freer environment for entry. We analyze both static and dynamic versions of the model to examine which environment supports a policy that blocks entry. In the dynamic version of the model, the economy can exhibit various different dynamics, such as multiple steady states and policy-induced cycles.

Connecting to Power: Political Connections, Innovation, and Firm Dynamics

“…On the theory side, surprisingly little has been done to understand social costs of rent-seeking through its impact on business dynamics, innovation, and aggregate productivity growth -aspects that are the focus of this article. Two exceptions are Krusell and Rios-Rull (1996) and Mukoyama and Popov (2014), where the authors study the models with tensions between new and old technologies/incumbents and entrants in the environments where firms can influence entry policies.…”

Assessing of the Competitiveness Level in the Industry using the Correlation Analysis on the Example of Agriculture of the Republic of Tatarstan, Russian Federation

“…This orientation of state policy increases food security in the region. However, in the long term, this policy has a significant disadvantage: There are prerequisites of monopolizing the industry, there reduced incentives of major producers to improve the competitiveness of their products in the global market, there created barriers to entry for small and beginning farmers (Aidis and Adachi, 2007;Broadman, 2000;Karakaya and Parayitam, 2013;Kemp and Lutz, 2006;Kudová and Chládková, 2008;Mukoyama and Popov, 2013). In this regard, the main directions of state support should be to create conditions for the exchange of information and the creation of links between producers, intermediaries and sales organizations.…”

“…The consequences are cutbacks of produced food, rising prices, uneven production of products in the region, reducing employment, growth of threats to food security (Aidis and Adachi, 2007;Broadman, 2000;Karakaya and Parayitam, 2013;Kemp and Lutz, 2006;Kudová and Chládková, 2008;Mukoyama and Popov, 2013).…”

Crony Capitalism as An Electoral Outcome

“…One of the explanations of high entry barriers on markets is the result of the influence of special interest groups either on a candidate platform or on the government in office (Grossman and Helpman (1994), Grossman and Helpman (1996), Mukoyama and Popov (2014)). In an extension of the baseline model, we take into account the possibility of incumbent firms to lobby the no-entry regime after the elections through informal payments.…”

“…Following them, we consider barriers to entry as an electoral outcome and as a binary variable, but we consider a two-dimensional political space and the median voter theorem can not be applied. Parente and Zhao (2006) and Mukoyama and Popov (2014) consider barriers to entry on markets a result of the influence of special interest groups. We focus on the general-interest political economy model for understanding the electoral support of crony capitalism.…”