University of New South Wales

Small firms: How many is too many

Email address: a.ghosh@unsw.edu.au

Keywords: Business-stealing effect, socially optimal entry, free-entry equi-librium, excess entry, entry regulation

JEL Classifications: L51, L52

Abstract:
We consider entry regulation with asymmetric costs. It is known that with economies of scale, absent entry regulation more firms en-ter than is optimal. We show under general demand conditions with Cournot competition that asymmetry in costs also leads to excess entry. Our proof of this result is novel. Further, disallowing entry by firms more efficient than already-existing firms might be welfare-improving! We also consider Stackelberg competition. With leader-ship by low-cost(high-cost) firm, we find free entry to be optimal(inoptimal). However, with endogenous choice of form of competition, a low-cost, leader firm might forego leadership making regulation optimal.

PDF file of paper: ghosh.pdf

Session: Industrial Organization Theory I

Time: Saturday, 7 July, 8am - 9:30am

Room: D