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Free Entry and Social Efficiency under Vertical Oligopoly
Arghya Ghosh and Hodaka Morita
The RAND Journal of Economics
Vol. 38, No. 2 (Summer, 2007), pp. 541-554
Stable URL: http://www.jstor.org/stable/25046321
Page Count: 14
You can always find the topics here!Topics: Business structures, Elasticity of demand, Total surplus, Oligopolies, Industrial regulation, Industrial products, Intermediate products, Marginal profit, Industrial market, Parameterization
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We analyze a successive vertical oligopoly model that incorporates vertical relationships between industries and demonstrate that free entry in an industry that produces a homogeneous product can lead to a socially insufficient number of firms. This is in contrast with the previous findings that, under Cournot oligopoly with fixed set-up costs, level of entry in the free-entry equilibrium is socially excessive. It has often been argued that this result can provide a justification for apparently anticompetitive entry regulations. Our finding yields an important policy implication that such a justification is not necessarily valid when vertical relationships are taken into account.
The RAND Journal of Economics © 2007 RAND Corporation