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A Welfare Analysis of Barriers to Entry
Abstract
It is widely believed that welfare would be improved by encouraging entry in circumstances where "barriers to entry" (in the sense of Bain) exist. Two models are developed herein which demonstrate that this view is incautious. Economies of scale and product differentiation are both held to be barriers to entry in the Bain scheme of analysis. I show that there are plausible parameter configurations for both economies of scale and goodwill (which is a variant of product differentiation) under which welfare would be improved by increasing, rather than decreasing, the protection of incumbents from the competition of entrants. Greater attention to detail in the analysis of industry circumstances and greater caution in reaching "obvious" welfare conclusions are needed.
... As such, a company that accumulates positive evaluations about its CSP over time generates a corporate reputation (Logsdon & Wood, 2002). Stakeholders will observe whether the company consistently meets their CSP expectations and they will translate past CSP into expectations about a firm's probable future behavior (Weizsacker, 1980). That is, when a firm has a high CSP, adapting its behavior overtime to the institutional framework and to the stakeholder's expectations, it results in a reduction in the uncertainty about the firm's future behavior and this consolidates its corporate reputation. ...
... It was measured as the logarithm of the number of years since the company's foundation because the corporate reputation building process is slow (Fombrun, 1996;Schultz et al., 2001). Companies that have been in business for long will have been subject to more scrutiny and may therefore be expected to have had a track record of satisfying stakeholders, so stakeholders will extrapolate from previous behaviors to generate expectations of future behavior (Weizsacker, 1980). ...
Corporate social performance (CSP) has received a particularly high share of attention as one of the main determinants of corporate reputation. However, few studies have tested the extent to which the relationship between CSP and corporate reputation may be affected by industry, country, or other context‐related variables. Besides, some conceptual thinking suggests that the impact of CSP on corporate reputation may vary according to the level of consistency of a firm's behaviors. However, this view has not been empirically addressed. For this reason, the main objective of this study is to explore the impact of consistency in CSP management on corporate reputation. Specifically, we analyze both the effect of CSP internal consistency (or consistency between environmental and social performance) and CSP consistency over time on corporate reputation. The results based on data from an international sample of 133 companies for the period 2011 to 2016, support either CSP internal consistency or CSP consistency over time (positive increment of CSP over time) positively affecting corporate reputation. The results also confirm the moderation effect of CSP internal consistency on the relationship between CSP and corporate reputation. These results reveal that consistency in social responsibility management helps a firm to consolidate its corporate reputation.
... Bain (1956) has triggered this discussion and many others have followed him (see, for example, Gilbert, 1989, chap. 8;Porter, 1980;Stigler, 1968;Von Weizsacker, 1980) thus, resulting in many different definitions of the concept "barrier to entry". More recently, Carlton (2008) offers an interesting discussion on the subject, its failure in incorporating dynamics, and its possible inadequacy to understand many industries. ...
... More recently, Carlton (2008) offers an interesting discussion on the subject, its failure in incorporating dynamics, and its possible inadequacy to understand many industries. Looking at the vast literature, it is possible to distinguish two perspectives: the one of the industrial organization (see, for example, Bain, 1956;McAfee, Mialon, & Williams, 2004;Stigler, 1968;Von Weizsacker, 1980) and the other of strategic management (see, for example, Porter, 1980;Robinson & McDougall, 2001;Singh et al., 1998). ...
This paper attempts to assess the variety and relevance of barriers to entry perceived by Portuguese firms. Based on a questionnaire, Portuguese firms’ perceptions were surveyed using a sample of 168 firms. The results suggest that sunk costs, capital requirements, capital costs, and cost disadvantages are the most important barriers to entry. Applying a factor analysis, six underlying dimensions of entry barriers – investment in R&D, strategic behaviour, investment risk, advertising, cost disadvantages, and capacity – were identified. These findings are quite consistent among industries and firms’ sizes. Still, micro firms have lower perceptions regarding entry barriers than SMEs and large firms. Portuguese firms’ perceptions on entry barriers suggest that both structural and strategic barriers are important and that the effectiveness of strategic barriers depends on the structural characteristics of the market.
... The first strand of literature is concerned with free entry bias. Starting with Weizsacker (1980), the issue of inefficiency of free entry equilibrium has received considerable attention in the literature. ...
... . Then equations (14) and (16) together imply that, for any given number of firms in the industry, privately optimal output per firm is less than the socially optimal output per firm, because firms ignore the benefit of generation externalities. On the other hand, equations (15) and (17) together imply that, for any given level of per firm output, the free entry equilibrium number of firms is less than the social optimal number, because firms do not take in to account the benefit of spill over externalities. ...
This article analyses alternative subsidy schemes and long-run entry bias in a new industry that creates positive environmental externalities. It demonstrates that per unit subsidy scheme, despite attracting fewer firms, results in higher industry output and economic surplus in the equilibrium compared to the expenditure equivalent lump-sum subsidy scheme. However, the later leads to higher total surplus, unless spill-over externalities is sufficiently small. Further, free entry equilibrium number of firms may be excessive or insufficient. The first best equilibrium outcome can be implemented through a unique combination of per unit subsidy and lump sum subsidy/tax, which involves positive government expenditure.
... 3 1 Entry is socially excessive (insufficient) if the free entry equilibrium number of firms is more (less) than the welfare maximising number of firms. 2 Excess entry theorem sparked considerable interest in uncovering the welfare effects of entry in imperfectly competitive markets. For a representative sample, see, Von Weizsäcker (1980), Suzumura and Kiyono (1987), Okuno-Fujiwara and Suzumura (1993), Anderson et al. (1995), Ghosh and Saha (2007), Stähler and Upmann (2008), Mukherjee (2012), Amir et al. (2014), De Pinto and Goerke (2019) and Basak and Petrakis (2021). 3 Allowing free entry in the downstream market, in a related study, Ghosh and Morita (2007b) showed that when the input suppliers have market power, entry can be socially insufficient if the input suppliers have sufficiently strong bargaining power in input price determination. ...
... По мнению К. Вайцзеккера, потребительский выбор может быть улучшен, если конкуренция потребителей искажает оценки альтернатив потребительского выбора. Это может быть достигнуто увеличением, а не уменьшением защиты потребителей от конкуренции новых участников рынка [48]. ...
В монографии на основе измерений предпочтений потребителей к пищевым продуктам местных производителей выявлены особенности рынка локальных пищевых продуктов г. Сыктывкара, в частности, молока, сливочного масла, куриным яйцам, произведенным в северных регионах. Показано, что потребители при прочих равных условиях предпочитают локальную пищевую продукцию. Использование результатов исследования способствовало повышению эффективности предприятий АПК в Республике Коми, улучшению качества жизни населения северных территорий, укреплению продовольственной безопасности регионов Севера.
... In the different setting, free entry stops at a finite number n # of firms, where individual profits i n # are equal to zero. The firm's equilibrium quantity when free entry stops, q i (n # ) , is greater than zero and smaller than firm's optimal size (von Weizsäcker 1980). Under increasing returns, the market externality induced by firm supply does not vanish under free entry. ...
This paper investigates efficiency and freedom as joint foundations of market economies. Whereas ideal perfect competition accommodates Mill’s principle of individual liberty in the economic arena, in real world, imperfectly competitive, markets economic freedom and efficiency appear often as conflicting values. Building on J. S. Mill’s utilitarian defense of free trade in On Liberty Chapter V, this paper puts forward a consequentialist defense of economic freedom under imperfect competition. Defense rests on the instrumental value of equal freedom, enjoyed by every market agent, as a source of general welfare in a world of dispersed information among unique human beings. The paper has a clear impact on contemporary antitrust debate, supporting neo-Brandesians’ rehabilitation of Structuralism in antitrust also on well founded, economic, i.e. efficiency, reasons.
... Several early studies explained the factors influencing capacity utilization in terms of market competition. Some researchers [5][6][7][8] have argued that the "excessive entry theorem" explains the problem of duplication and overcapacity in oligopolistic markets. This theorem claims that when the market is open to new entrants and Cournot competition is enforced, the number of firms in equilibrium will exceed the number that maximizes social welfare. ...
Based on empirical analysis of Chinese listed companies from 2010 to 2018, we demonstrate that enterprise digital transformation has a significant impact on improving capacity utilization. Digital transformation is a significant driving force behind enterprise-specific production and innovation. Furthermore, enterprise innovation and enterprise-specialized production play a mediating role in the impact of enterprise digital transformation on capacity utilization. Based on these baseline findings, heterogenous analysis reveals that the impact of digital transformation on capacity utilization is significant for firms with larger capital scales or poor governance and manufacturing abilities. However, it is less important for enterprises with small- and medium-sized capital scales or with more standardized governance, as well as non-manufacturing (service) enterprises.
... Even without cognitive biases in the works, several common models of competition exhibit the property that free entry by potential competitors results in too many firms entering a market from a social welfare perspective. 226 This result is not generic to all forms of competition. It does not necessarily hold in differentiated product spaces, 227 or where vertical interactions are incorporated in the entry model. ...
Entry defenses and potential competition doctrine have much in common. Both draw from predictions about future entry. Both demand difficult assessments of entry barriers and incentives. And both suffer from confused thinking today. This Article offers a clarifying perspective. Rather than focus on matters of litigation posture (who wins or loses if an argument is proved) we look to the type of analytical time travel being performed. Corrective entry defenses and actual potential competition theories involve exercises in forward time travel: reasoning about how future entry will impact future competition. Preventative entry defenses and perceived potential competition theories involve exercises in backward time travel: reasoning about how threats of future entry impact current competition. Grouping theories in this way reveals analytical flaws and unprincipled asymmetries in current thinking. It also exposes problems and paradoxes that beset all time travel arguments in antitrust analysis.
... However, unlike us, they consider symmetric retailers (the downstream agents), quantity forcing contracts offered by the manufacturer, and the number of retailers is determined by the manufacturer rather than the zero profit condition. 5 For a representative sample of other papers on social efficiency of entry, see, Von Weizsäcker (1980), Okuno-Fujiwara and Suzumura (1993), Anderson, de Palma, and Nesterov (1995), Fudenberg and Tirole (2000), Anderson and de Palma (2001), Cabral (2004), Mougeot and Naegelen (2005) ...
We study social efficiency of entry in the presence of downstream cost asymmetry and upstream price discrimination. We show that entry is excessive when the entrants are highly inefficient, and it is insufficient when either the entrants are efficient or their inefficiency is low. The results are in sharp contrast to the existing literature considering upstream uniform pricing (Cao, H., and L. F. S. Wang. 2020. “Social Efficiency of Entry in a Vertically Related Industry Revisited.” Economics Letters 129. Art. no. 109200), as discriminatory pricing alters the relative strengths of the business-stealing, business-creation and production-(in)efficiency effects.
... Glass 1997;Grossman and Helpman 1991;Vernon 1966). Considering symmetric firms and competition in a domestic country, we show that if the number of foreign firms is more than the number of domestic firms, 2 For a representative sample, see Von Weizsäcker (1980), Suzumura and Kiyono (1987), Okuno-Fujiwara and Suzumura (1993), Anderson, de Palma, and Nesterov (1995), Morita (2007a, 2007b), Ghosh and Saha (2007), Stähler and Upmann (2008), Mukherjee (2012aMukherjee ( , 2012b, Marjit and Mukherjee (2013), Amir, Castro, and Koutsougeras (2014), Basak and Mukherjee (2016) and De Pinto and Goerke (2019). 3 Even if there is a business stealing effect, entry can be insufficient in the presence of differentiated goods (see, e.g. ...
We show that cost asymmetry between the domestic and foreign firms is not necessary for the occurrence of insufficient entry in the domestic country. This result provides a rationale for pro-competitive domestic policies even in the absence of cost asymmetries among the domestic and foreign firms. However, if significant demand comes from foreign countries, and the market structures are determined endogenously in the domestic and foreign countries, domestic-entry in an open economy might not be insufficient, implying that foreign competition might not reduce the importance of anti-competitive domestic policies.
... 1 For a representative sample, see Von Weizsäcker (1980), Suzumura and Kiyono (1987), Okuno-Fujiwara and Suzumura (1993), Anderson et al. (1995), Stähler and Upmann (2008), Mukherjee (2012a, b), Amir et al. ...
We examine the welfare effects of entry in the presence of network externalities. We show that if network goods are fully incompatible, entry is socially insufficient as long as the entry cost is high, the goods are sufficiently differentiated, and the degree of network externality is low. Further, we show that as the degree of compatibility between the network goods increases, insufficient entry becomes more likely. Our findings provide policy guidelines for anticompetitive and procompetitive entry regulations.
... Although empirical studies provide ambiguous findings regarding the influence of firm age on corporate reputation (Rao, 1994;Schultz et al., 2001), we controlled for age (measured as the difference between the year of analysis and the year the company was founded) because companies that have stayed in business through long periods of market supervision can be expected to have maintained stakeholders' satisfaction. Therefore, stakeholders should extrapolate previous behaviors to generate expectations of future behaviors (von Weizsacker, 1980). We also included context control variables because expectations about companies may be affected by the context in which they operate. ...
Studies have shown that corporate social performance (CSP) is an antecedent of corporate reputation, acting as a signal that affects stakeholders’ perceptions and expectations about a firm’s future behavior. However, the perceptions, expectations, and interests of stakeholders may be affected by external factors, such as national culture, which shapes their beliefs about what role companies play in society. Drawing on institutional theory and Hofstede’s cultural dimensions, we analyze how stakeholders’ national culture moderates the relationship between CSP and corporate reputation. The results of the analysis of an international sample for the period 2010 to 2016 show that low individualism (i.e., collectivism), low masculinity (i.e., femininity), low power distance, and low uncertainty avoidance intensify the positive relationship between CSP and corporate reputation.
JEL CLASSIFICATION: M14, L14
... For barriers to entry in literature, two traditions can be recognized: first the industrial organization point of view (e.g. McAfee et al. 2004;Von Weizsacker 1980;Stigler 1968;Bain 1956) second the strategic management point of view (e.g. Robinson and McDougall 2001;Singh et al. 1998;Porter 1980Porter , 1985. ...
Entry barriers are one of the dangerous powers that helps with incumbent firms in terms of competitive advantage over new participants and helps to promote the oligopoly market structure. The objective of this study is to consider barriers to entry of new entrants into Kandahar industrial park and to recognize some remedial business strategies where it’s application make the entry easy into Kandahar industrial park. To conduct this study a mixed method research design is used. The qualitative technique is completed over semi-organized interviews where prepared questions are used (Saunders and Lewis, 2012). To obtain quantitative data a 5-point Likert scale questionnaire is utilized, which was sent out to senior and middle workers, managers and owners. Results shows that there are entry barriers into Kandahar industrial park which influence new entrants negatively. And the importance level of the entry barriers to new entrants is significantly different. Yet, there are economics strategies that helps entrepreneurs to enter Kandahar industrial park.
Keywords Entry Barriers, SMEs, Entrepreneurship, Kandahar industrial park.
... Tuttavia si dimostra analiticamente come in presenza di un monopolio una tale fissazione del prezzo, sebbene consenta di raggiungere un livello di produzione allocativamente efficiente, comporta per il monopolista una perdita, in quanto il livello dei costi marginali risulta costantemente superiore a quello dei costi medi (tant'è che storicamente i governi nazionali erano soliti compensare le perdite delle imprese pubbliche attraverso sussidi provenienti da altri settori industriali). Per maggiori approfondimenti si vedaVon Weizsäcker C.C. (1980), A welfare analysis of barriers to entry, Bell Journal of Economics, vol. 11, n. 2, The RAND Corporation, Santa Monica;Schmalensee R. (1989), Inter-industryCAPITOLO II -I TEST PER LA DEFINIZIONE DEI MERCATI RILEVANTI OGGETTO DI REGOLAZIONE: SMP & TCT LA CONCORRENZA E LA REGOLAMENTAZIONE IN MATERIA DI COMUNICAZIONI ELETTRONICHE ...
Samà, Danilo (2009), Competition and regulation in the electronic communications market: significant market power & three criteria test, LUISS “Guido Carli” University, Rome, Italy, 1-190.
... In order to ease comparability with earlier investigations, we assume a homogeneous Cournot-oligopoly with identical firms, linear demand and cost schedules and fixed costs of market entry. In such a setting, the number of entrants will be excessive in a closed economy if entry reduces output per firm, that is, if there is businessstealing (von Weizsäcker 1980, Mankiw and Whinston 1986, Suzumura and Kiyono 1987, Amir et al. 2014. We extend the analysis to a multi-country, two-period framework. ...
Entry in a homogeneous Cournot-oligopoly is excessive if and only if there is business-stealing (Amir et al., 2014). The excessive entry prediction has been derived primarily for closed economies and using a welfarist benchmark. We extend this framework and allow for (1) horizontal FDI in a multi-period setting and (2) interest group-based government behaviour. Opening the market to greenfield investments from abroad tends to aggravate the entry distortion. Moreover, market opening may reduce welfare if a more pronounced entry distortion dominates the gain in consumer surplus. Finally, a government, which places sufficiently little weight on the interests of consumers, will object to market opening, even if welfare rises.
... Referring to age, corporate reputation in general is socially constructed (Lange, Lee and Dai, 2011), accumulates slowly (Fombrun, 1996), and is based on the multiple actions associated with an organization's past (Flanagan and O'Shaughnessy, 2005). As such, companies in business over a longer time period can be assumed to have satisfied their stakeholders (at least minimally) over the years (Delgado-García, De Quevedo-Puente and De La Fuente-Sabaté, 2010;von Weizsacker, 1980), which contributes to the building of a positive reputation (Kosová and Lafontaine, 2010). With respect to firm size, Fombrun and Shanley (1990) found a strong positive link between this organizational characteristic and corporate reputation. ...
Drawing from resource-based theory, we argue that family firm franchisors behave and perform differently compared to non-family firm franchisors. Our theorizing suggests that compared to a non-family firm franchisor, a family firm franchisor cultivates stronger relationships with franchisees and provides them with more training. Yet, we predict that a family firm franchisor achieves lower performance than a non-family firm franchisor. We argue, however, that this performance relationship reverses itself when family firm franchisors are older and larger. We test our hypotheses with a longitudinal dataset including a matched-pair sample of private U.S. family and non-family firm franchisors.
... Vgl. dazu von Weizsäcker (1980), Perry (1984) sowie Reich (2002). ...
... Toch is het ook hier niet zo eenvoudig als op het eerste gezicht lijkt. Von Weizsacker (1980) laat bijvoorbeeld zien dat bepaalde toetredingsbelemmeringen -en dus bepaalde bedrijfstakinerties -de maatschappelijke welvaart kunnen verhogen. experimenten in de vorm van het gevangenendilemma, zoals in paragraaf 4 beschreven, hebben zij onderzocht welke invloed de culturele samenstel ling van taakgroepen heeft op het functioneren van deze groepen in termen van concurrentie en samenwerking. ...
To quote this resource: Dorian DUTOIT-PROUST, “Relevance and Effectiveness of sui generis instruments to tackle exclusionary practices in the Digital Economy”, Competition Forum – Resources, 2024, n° 0015, https://competition-forum.com
In a Cournot industry where firms are privately informed about their marginal costs, raising entry barriers (i.e., imposing strictly positive, but not too large, entry costs) increases expected output, entrants' profits, total welfare, and might benefit consumers. Under Bayes‐Cournot competition, firms react to the expectation (conditional on entry) of rivals' costs rather than to their actual costs. This creates scope for entry by relatively inefficient types. Entry costs that prevent these high‐cost types from entering increase inframarginal (lower‐cost) types' and rivals' expected output. As a result, they increase profits and, unless they reduce output variability too much, also consumer surplus.
This study explores the economic moat concept, which has become increasingly relevant to modern-day businesses seeking a sustainable competitive advantage. Drawing upon Porter's Five Forces Model, we investigate the potential for economic moats in small companies and emerging entrepreneurial firms. By analyzing examples of narrow economic moats in small firms, we provide insights into the strategies that may help these firms build and maintain a competitive advantage in their respective markets. Our findings suggest that entrepreneurial firms can leverage various sources of competitive advantages, such as customer loyalty, low-cost structures, and network effects, to create narrow economic moats that protect against competitive threats. Case studies of Andy’s Hobby Headquarters and Laura Farms illustrate how small firms can successfully cultivate narrow economic moats aligned with Porter’s Forces. Andy’s strategic evolution from a local hobby shop to a national and international destination, coupled with a strong online presence and community engagement, demonstrates how management actions can foster customer loyalty and differentiation. Similarly, Laura Farms leverages social media to project company values and create emotional ties with viewers, establishing a narrow economic moat. This paper offers practical insights for entrepreneurs and small business owners seeking long-term success in today's highly competitive business environment. Finally, it concludes that deliberate management strategies, particularly in marketing, can facilitate the development of economic moats within competitive environments and substitution pressures. By adjusting traditional definitions of economic moats to accommodate the rapid pace of entrepreneurship, it advocates for further research into the relationship between economic moats and sustained profitability among entrepreneurial ventures.
This paper analyses the markets for vegetable oil and the main inputs in and across seven COMESA member states. Vegetable oil is a staple food product and, as such, affordable vegetable oil is important for households’ food security. The vegetable oil markets are characterised by high levels of concentration in terms of the major suppliers and producers across the East and Southern African (ESA) countries studied. Around three to four companies account for the majority of supply in each of the seven countries examined, namely, Kenya, Rwanda, Uganda, Malawi, Zambia, Zimbabwe and the DRC. The largest companies are integrated across countries and along the value chain. In Eastern Africa vegetable oil is supplied mainly from refining of imported crude palm oil, while in Southern Africa oil is mainly from processing of soybeans and other oil seeds which are locally grown. The vegetable oil prices are far above the costs of sourcing and processing inputs.
Conventionally, entry is thought to enhance welfare by enhancing competition and hence lowering prices and increasing the output. Contrary to the conventional wisdom, working with an nn-firm Cournot oligopoly set up and using the trigger strategies, we show that entry may or may not impact welfare. However, entry has the potential to alter the market structure from collusion to Cournot competition, and when it does so, there is a discontinuous rise in welfare.
Entry in a homogeneous Cournot‐oligopoly is excessive if there is business‐stealing. These findings assume that production costs reduce profits and welfare equally. If firms pay informational rents due to frictions in the employer–employee relationship, production costs partly reflect transfers, which do not alter welfare directly. We investigate the excessive entry theorem in the presence of rents. We find that informational rents can invalidate the theorem. Rents reduce profits and deter entry into the market equilibrium, while the socially optimal number of firms is not affected directly. The rent effect becomes stronger the lower the number of firms and can overcompensate the business‐stealing externality. As an example, we model a hidden action problem in which employees have an informational advantage after signing the contract with the firm. Insufficient entry occurs if entry costs are sufficiently high because they lower the number of firms and raise informational rents.
Reklamın, reklam veren teşebbüs, müşteriler ve rakipler açısından doğurduğu sonuçlarla bağlantılı olarak, ilgili pazarı, pazardaki veya pazara girme hazırlığındaki olası rakipleri etkileme olasılığı da bulunmaktadır. Bu kapsamda, hâkim durumdaki bir teşebbüsün uzun zamandır yürütmekte olduğu yüksek bütçeli reklam kampanyaları, pazara girmeyi hedefleyenler açısından bir giriş engeli oluşturabilir. Ya da, hâkim durumdaki teşebbüsün, kullandığı reklam yöntemleri veya dayattığı reklam sınırlamaları, ilgili pazarda hâkim durumun kötüye kullanılmasına neden olabilir. İlgili teşebbüsün sunduğu mal veya hizmete ilişkin markanın jenerik isim haline gelmesi, müşteri bağlılığına sahip olması veya ilgili pazardaki reklam yasakları dolayısıyla, rakiplerin tanıtım imkanı bulamamaları gibi değişkenler de, bu sonuçlara varılmasında dikkate alınmaktadır. Bu çerçevede, reklamın rekabet hukuku ihlallerinin gerçekleştirilmesi için bir araç vasfı taşıyabileceği açıktır. Çalışmanın amacı, rekabet hukuku teorisi açısından reklamın konumunun ve olası rekabet ihlallerinin oluşmasındaki işlevinin değerlendirilmesidir. Bu çerçevede çalışmanın alt başlıklarında, ilgili Rekabet Kurulu kararları incelenmekte ve Türk hukukunda reklama yönelik rekabet ihlali gerekçesine dayanan müdahaleler tasnif edilmektedir.
We introduce advertising congestion along with a time use model of consumer choice among media. Both consumers and advertisers multihome. Higher equilibrium advertising levels ensue on less popular media platforms because platforms treat consumer attention as a common property resource: smaller platforms internalize less of the congestion from advertising and so advertise more. Platform entry raises the ad nuisance price to consumers and diminishes the quality of the consumption experience on all platforms. For consumer welfare this price effect of entry dominates the positive effect of more variety in some settings; thus, consumers will then be worse off after entry. (JEL D11, D43, L13, L82, M37)
This paper provides a novel rationale for the regulation of market size when heterogeneous firms compete. A regulator seeks to maximize total welfare by choosing the number of firms allowed to enter the market, e.g. by issuing a certain number of licenses. Opening up the market for more firms has a two-fold effect: it increases competition and thus welfare, but at the same time, it also attracts more cost-intensive firms, driving down average production efficiency. The regulator hence faces a trade-off between raising beneficial competition and detrimental costs. If goods are sufficiently substitutable, the latter effect can outweigh the former. It is then optimal to restrict the market size, rationalizing a limit to competition. This possibility result holds even in the absence of entry costs, search costs or increasing returns to scale, which previous literature required.
We consider a principal-agent relationship with adverse selection. Principals pay informational rents due to asymmetric information and sell their output in a homogeneous Cournot-oligopoly. We find that asymmetric information may mitigate or more than compensate the welfare reducing impact of market power, irrespective of whether the number of firms is given exogenously or determined endogenously by a profit constraint. We further show that welfare in a setting with adverse selection may be higher than the maximized welfare level attainable in a world with perfect observability.
We build a successive Bertrand model with a homogenous good. We show that increasing the production efficiency of an industry can reduce firms’ profits. We also show that this result holds in the successive Cournot model. Hence, an industrial policy aimed at improving production efficiency may be undesirable for firms.
This paper analyses alternative subsidy schemes and long‐run entry bias in a new industry that creates positive environmental externalities (both generation externalities and externalities associated with interindustry technology spillovers). It demonstrates that per‐unit subsidy scheme, despite attracting fewer firms, results in higher industry output and economic surplus in the equilibrium compared with the expenditure equivalent lump‐sum subsidy scheme. However, the later leads to higher total surplus, unless spillover externalities are sufficiently small. Further, the free‐entry equilibrium number of firms may be excessive or insufficient. A key finding of this paper is that the first‐best equilibrium outcome can be implemented through a unique combination of per‐unit subsidy and lump‐sum subsidy/tax, which involves positive government expenditure in the presence of positive externalities.
The so‐called excess‐entry theorem establishes conditions guaranteeing that more firms enter a homogeneous Cournot‐oligopoly in equilibrium than a benevolent government prefers. We generalize the approach and analyze the behavior of a competition authority, which attaches different weights to the firms' and consumers' payoffs, with welfare‐maximization constituting a special case. The greater the importance of consumers, the less likely entry restrictions are, whereas a greater relevance of firms makes a monopoly more probable. The nature of entry restrictions also depends on the competition authority's instruments. The essential insights continue to apply if firms are heterogeneous concerning costs and the timing of output choices.
How does cost uncertainty affect the welfare consequences of an oligopoly? To answer this question, we investigate a Cournot oligopoly in which firms produce a homogeneous commodity and market entry is feasible. Marginal costs are unknown ex ante, that is, prior to entering the market. They become public knowledge before output choices are made. We show that uncertainty induces additional entry in market equilibrium and also raises the socially optimal number of firms. Since the first change dominates, the excessive entry distortion is aggravated. This prediction is robust to various extensions of the analytical setup. Furthermore, the welfare loss due to oligopoly tends to increase with uncertainty.
Brazil began 2013 year with the announcement of the Central Bank of Brazil (BCB) on whether to authorize the entry of new nineteen foreign banks. Moreover, there are barriers to entry in any market. They are structural and can be hardly changed by potential entrants. The research investigates what are the entry barriers the foreign banks will face in the Brazilian market. The theory indicated the barriers should be surveyed, and other specific barriers emerged from consultation with 112 experts from the banking market. They were divided into market barriers and institutional barriers. The research consulted in 2013 the national regulator bank (BCB) and 39 domestic and foreign banks. The analysis was descriptive and explanatory using factor analysis and logistic regression. For the analysis it was considered as dependent variable the type of bank (domestic or foreign), and as predictors variables the entry barriers. As a result, it was seen that the barriers of market are representative and the institutional barriers showed no significance, which shows the strength of the banking industry in Brazil
This paper models a consumer loan market with a vertical structure where an upstream monopolist supplies funds to downstream nonbanks. The nonbanks supply funds to consumers in the consumer loans market. An inverse demand function of the consumer is linear. The downstream nonbank freely enters the market as long as it earns a positive profit. First, this paper derives free-entry equilibrium without government regulation. Next, this paper examines the effects of government regulation on the entry of nonbanks. Two regulatory schemes are investigated: partial regulation, wherein the government can only control the interest rate the monopolist sets, and full regulation, wherein the government can control the number of nonbanks as well as the interest rate. This paper presents four new results. First, downstream firms insufficiently enter the market under partial regulation. Second, downstream firms excessively enter the market under full regulation. Third, the establishment of the upstream public firm improves welfare even though its profit is negative under partial regulation. Fourth, full regulation is welfare improving compared to partial regulation.
This book includes papers presented at the ISDG12-GTM2019 International Meeting on Game Theory, as a joint meeting of the 12th International ISDG Workshop and the 13th "International Conference on Game Theory and Management”, held in St. Petersburg in July 2019.
The topics cover a wide range of game-theoretic models and include both theory and applications, including applications to management.
The paper addressed to a question whether the free entry of profit-seeking large firms (oligopolies) is advantageous for consumers, or the governmental restrictions to enter may have the positive effect on consumers’ well-being. The negative welfare effect of excessive enter is well-known in case of homogeneous good, though there was hypothesis that consumers’ love for variety in case of differentiated good may offset this effect. The main result of this paper is that this almost never happened. We study a general equilibrium model with imperfect Bertrand-type price competition. Firms assumed to have non-zero impact to market statistics, in particular, to consumer’s income via distribution of non-zero profit across consumers-shareholders. It is proved that the governmental restrictions in certain bounds increases Social welfare under quite natural assumptions on utilities, which hold for most of the commonly used classes of utility functions, such as Quadratic, CARA, HARA, CES, etc.
The overarching objective of this doctoral thesis is to contribute to the field of Finance and Information Management by providing novel perspectives on digital transformation and IT innovation management. After motivating the relevance of developing new management and evaluation approaches, this thesis presents new approaches that support the digital transformation and IT innovation management. Three relevant challenges were addressed in the research papers that are included in this doctoral thesis: (i) Digital Transformation Managemen (ii) IT Innovation Management (iii) Analysis of Specific IT Innovations
Title: Investigation Procedures on the Entry Barriers of Drugstore Chains in the City of Volta Redonda/RJ.
Purpose: To identify what actions are taken by local drugstore chains to face competition from big drugstore chains like Pacheco and Raia.
Procedures/Methods for solving the problem: The number of drugstores studied in this city consisted of 128 stores. To achieve the data, fieldwork and bibliographic survey were chosen to support the theory. The procedures on solving the problem were elucidated through a qualitative, an observational research with descriptive orientation through semi-structured interviews, with open questions and legal term of consent from respondents. Former commercial directors, suppliers, sales representatives, consultants, among others from the largest local drugstore chains who worked at the period of entry barriers had contributed with interviews. The interpretation of the material collected was made through content analysis. The form of data and information collection were triangulated through oral history, participant observation and documentary survey.
Results: Local drugstores adhered to the concept of drugstores brought by national drugstore chains, broadening the mix of products available and inventing creative ways to build customer loyalty. Respondents considered that the oligopoly of the market was intentional for the creation of entry barriers, but without evident price cartelization.
Practical Implications: The results of these industry implications shaped the performance and behavior characteristics of local drugstore chains by the need to adapt to a new standard. The regional and national pharmaceutical market grows annually, drugstore chains expand their stores at a rapid pace, annual revenues keep pace, small drugstores are losing more space and this scenario lacks studies on the phenomenon, which increases demand for this kind of research. The goal is to fill this gap that compares different economic powers competing for the same market, providing with this research a greater impact to the strategies of the pharmaceutical market.
Originality and Contributions: It has been found that there are no articles similar to this in the last ten years. The research is in line with the Scientific-Technological Lines of Action (LACT1) program of the Professional Master of Business Administration and the research project of the Center for Border Studies in Strategy and Society (NEFES).. The contributions bring discussions about the changes induced by the incoming drugstore chains in the issue of surviving a local drugstore chain in their sector, rescuing a paradigm in the area of positioning strategies for sectoral development.
Technical/Technological Production - Development of a framework on good practices to enable an action plan applied to the pharmaceutical sector in other cities, between local and national competitors, what is important for a Professional Master, as a technical-scientific database.
Diese Dissertation befasst sich in drei voneinander unabhängigen Kapiteln mit dem Forschungsfeld des ökonomischen Designs. Das "Design" von Situationen wirtschaftlicher Interaktion hat zum Ziel, den Verlauf und das Ergebnis der jeweiligen Interaktion zu steuern. In dieser Arbeit werden mathematisch-theoretische "Designs" zum einen formal entwickelt und diese zum anderen durch politische oder soziale Institutionen realisiert. Das erste Kapitel thematisiert die Implementierung von Sozialwahlfunktionen in einem kollusiven Umfeld. Es wird gezeigt, wie die gezielte Schaffung von asymmetrischer Information zwischen den kolludierenden Parteien deren Koordination erschweren und die Implementierung erleichtern kann. Im zweiten Kapitel wird dieser Ansatz im Kontext der Bestechlichkeit bei Finanzaudits angewendet. Korruption kann verhindert werden, wenn der bestechliche Akteure eine Warnung über anstehende Kontrollen erhält, nicht jedoch der bestechende Akteur. Das dritte Kapitel wiederum untersucht "Design" in Form von Markt- und Wettbewerbsregulierung. Eine Beschränkung des Wettbewerbs - durch eine Begrenzung der Zahl miteinander konkurrierender Firmen - kann entgegen der ökonomischen Intuition wohlfahrtsoptimierend sein.
Corporate social performance (CSP) is one of the main drivers of corporate reputation. The main aim of this study is to analyze the moderating effect of corporate social responsibility (CSR) reporting quality on the relation of CSP and corporate reputation through two effects. First, it may enhance the firm's credibility because CSR reporting favors CSP consistency by reducing managers' CSR discretion and easing CSP comparability along the time. Second, it may increase the visibility of CSR actions beyond direct stakeholders involved in them. Analyzing an international sample of 132 companies from nine countries for the period 2011–2016, we show that all of the CSP dimensions (social, environmental, and economic) positively affect corporate reputation. We also find that good CSR reporting quality increases the intensity of the environmental and social performance effects on corporate reputation. Results provide a new perspective of the role CSR reporting quality that managers have to deal to get better impacts of CSP on corporate reputation.
The article considers the impact of the market concentration on the social welfare. An earlier result about excessive number of firms at a free-entry oligopoly is generalized to the more realistic case of heterogeneous firms. A possible change in firms' behavior, including collusion, which is more probable under entry restriction, is also analyzed. It is shown that collusion is less dangerous than multiplied fixed costs if the ratio of the choke price and marginal costs does not exceed a certain critical value related to a share of the fixed costs.
Recently, “Financial Technology-companies” (FinTechs) are increasingly changing the financial services industry worldwide and impose considerable challenges for regulators tasked to solve the arising trade-off between sound regulation and innovation support. In this regard, regulatory sandboxes, which were recently introduced in several jurisdictions, provide a promising solution, as they imply a liberalization of regulatory requirements in order to enable FinTechs to test their innovative services. However, we observe that no comparable initiative exists in Germany, even though the German regulator identified a need for action on this subject in order to maintain its international competitiveness. Thus, based on a detailed analysis of various sandbox models worldwide, this paper develops a set of own recommendations as a basis for the implementation of a sandbox concept which might be applicable in the German regulatory environment. In doing so, we identify current theoretical as well as practical regulatory issues within the context of the rapid FinTech evolution. To the best of our knowledge, this paper represents the first study on key international sandboxes as a basis to design guidelines specifically for the German financial market. Thereby, we contribute to the literature as we evolve an effective regulation within the new setting of innovative financial technologies. Moreover, our findings contribute to the practical solution of current challenges faced by both regulators and affected companies. Even though our derived implications focus on the German financial sector, the results may potentially be applicable in further jurisdictions with similar regulatory requirements. JEL Classification: G21, G28, M13
Trade unions are often argued to cause allocative inefficiencies and to lower welfare. We analyze whether this evaluation is also justified in a Cournot‐oligopoly with free but costly entry. If input markets are competitive and output per firm declines with the number of firms (business stealing), there is excessive entry into such oligopoly. If trade unions raise wages above the competitive level, output and profits per firm decline, which could deter entry and thus improve welfare. We find that an increase in the union’s bargaining power raises welfare if the (inverse) demand curve is (sufficiently) concave. We also show that collective bargaining loosens the linkage between business stealing and excessive entry.
Die ökonomische Theorie der Regulierung befasst sich traditionell mit den Sektoren einer Volkswirtschaft, die auch in Deutschland lange Zeit sowohl durch intensive staatliche Eingriffe als auch durch den Betrieb von Unternehmen durch den Staat selbst gekennzeichnet waren (vgl. Borrmann und Finsinger, 1999). Bei diesen Sektoren handelt es sich insbesondere um die so genannten Versorgungsbereiche wie Energieversorgung, Telekommunikation und Post, Wasserversorgung und Transportwesen. Im Zuge des Liberalisierungsprozesses ab Mitte der 1990er Jahre wurde das Eigentum des Staates an den in diesen Sektoren tätigen Unternehmen schrittweise zurückgefahren, wenn auch heute noch in einigen Branchen substanzielle Anteil der Versorgungsunternehmen im staatlichen Eigentum stehen.
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The Economics of Information Joul-rial of Political Economy The Organization of Industry Barriers to Entry: A Theoretical Treatment Markets and Hierarchies: Analysis and Antitrust ImplicationsFranchise Bidding for Natural Monopolies-in General and with Respect to CATV
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