Abstract
In this paper, we allow the firms non-cooperatively but simultaneously to choose the R&D investment and output in different stages of the game with knowledge spillovers and show that when the deliberate decision of the firms on its R&D investment is acknowledged, entry is socially excessive. Our result has important implication for competition policy.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
Notes
The business-stealing effect indicates that a new entrant will and can acquire the market share from the incumbents making the incumbents reduce their outputs. See, Von Weizsäcker (1980), Suzumura and Kiyono (1987), Okuno-Fujiwara and Suzumura (1993) for other works on excessive entry in the presence of scale economies.
Other works, just name a few, see Matsumura and Okamura (2006) indicate that entry can be insufficient in spatial market; In an open economy without privatization policy, Marjit and Mukherjee (2013) show that entry in the domestic country may be socially excessive or insufficient under competitive labor markets, but it is always socially insufficient under a domestic labor union, while Wang et al. (2014)) in an international mixed oligopoly demonstrate that, in particular, the free entry number of domestic private firms is less than the welfare-maximized number of firms, free entry of domestic private firms is socially insufficient in an open economy.
This concept of knowledge spillover is similar to D’Aspremont and Jacquemin (1988).
In Haruna and Goel (2011), the symmetric assumption is used on their equation (2), and the output of the firms is \( {q}_i^{*}=\frac{a- c+\left[1+\gamma \left( N-1\right)\right]{x}_i}{N+1} \).We relax the symmetric assumption here, the rest of the mathematical calculations are affected due to the asymmetric assumption.
References
D’Aspremont C, Jacquemin A (1988) Cooperative and noncooperative R&D in duopoly with spillovers. Am Econ Rev 78:1133–1137
Ghosh A, Morita H (2007a) Free entry and social efficiency under vertical oligopoly. Rand J of Economics 38:539–552
Ghosh A, Morita H (2007b) Social desirability of free entry: a bilateral oligopoly analysis. Int J Ind Organ 25:925–34
Ghosh A, Saha S (2007) Excess entry in the absence of scale economies. Economic Theory 30:575–586
Haruna S, Goel RK (2011) R&D, free entry, and social inefficiency. Economics of Innovation and New Technology 20:89–101
Mankiw NG, Whinston MD (1986) Free entry and social inefficiency. Rand J of Economics 17:48–58
Marjit S, Mukherjee A (2013) Foreign competition and social efficiency of entry. Econ Model 32:108–112
Matsumura T, Okamura M (2006) A note on the excess entry theorem in spatial markets. Int J Ind Organ 24:1071–1076
Mukherjee A (2012a) Social efficiency of entry with market leaders. J of Economics & Manag Strategy 21:431–444
Mukherjee A (2012b) Endogenous cost asymmetry and insufficient entry in the absence of scale economies. J Econ 106:75–82
Mukherjee A, Mukherjee S (2008) Excess-entry theorem: the implications of licensing. Manch Sch 76:675–689
Okuno-Fujiwara M, Suzumura K (1993) Symmetric Cournot oligopoly and economic welfare: A synthesis. Economic Theory 3:43–59
Salinger MA (1988) Vertical mergers and market foreclosure. Q J Econ 103:345–356
Suzumura K, Kiyono K (1987) Entry barriers and economic welfare. Review of Economic Studies 54:157–167
von Weizsäcker CC (1980) A welfare analysis of barriers to entry. Bell J Econ 11:399–420
Wang LFS, Lee JY, Hsu CC (2014) Privatization, foreign competition, and social efficiency of free entry. Int Rev Econ Financ 31:138–147
Acknowledgments
We would like to thank the Editor and two anonymous referees for helpful comments and suggestions.
Author information
Authors and Affiliations
Corresponding author
Rights and permissions
About this article
Cite this article
Wang, L.F.S., Chao, A.C. & Lee, Jy. R&D and Social Inefficiency of Entry. J Ind Compet Trade 15, 181–187 (2015). https://doi.org/10.1007/s10842-014-0180-6
Received:
Revised:
Accepted:
Published:
Issue Date:
DOI: https://doi.org/10.1007/s10842-014-0180-6