nep-ind New Economics Papers
on Industrial Organization
Issue of 2008‒05‒24
three papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Regulatory design under asymmetric information about demand By Paula Sarmento; António Brandão
  2. Profit Raising Entry By Arijit Mukherjee; Laixun Zhao
  3. Excessive entry in a bilateral oligopoly By Arijit Mukherjee

  1. By: Paula Sarmento (CETE and Faculty of Economics, University of Porto); António Brandão (CETE and Faculty of Economics, University of Porto)
    Abstract: In this paper we compare the costs of two regulatory policies about the entry of new firms. We consider an incumbent firm that has more information about the market demand than the regulator. Then, the incumbent firm can use this advantage to persuade the regulator to make entry more difficult. With the first regulatory policy the regulator uses the incumbent price pre-regulation to get information about the demand. With the second regulatory policy the regulator design a mechanism to motivate the incumbent firm to price truthfully. We conclude that, for enough high values of the probability of low demand, the welfare is higher with the second (more active) regulatory policy.
    Keywords: asymmetric information, entry regulation, signalling, adverse selection
    JEL: C73 D82 L13 L51
    Date: 2008–05
  2. By: Arijit Mukherjee; Laixun Zhao
    Abstract: Common wisdom suggests that entry reduces profits of the incumbent firms. On the contrary, we show that if the incumbents differ in marginal costs and the entrants behave like Stackelberg followers, entry may benefit the incumbents who are relatively cost efficient while it always hurts the cost inefficient incumbents. However, the outputs of all incumbents may be higher under entry.
    Keywords: Entry; Profit; Stackelberg Competition
  3. By: Arijit Mukherjee
    Abstract: In a bilateral oligopoly, Ghosh and Morita (‘Social desirability of free entry: a bilateral oligopoly analysis, 2007, IJIO) show that entry is always socially insufficient if the upstream agents have sufficiently strong bargaining power. We show that this conclusion is very much dependent on the use of “efficient bargaining” model in their analysis. Using a “right-to-manage” model, we show that, even if the upstream agents have full bargaining power, entry is excessive in a bilateral oligopoly if the cost of entry is not very high. Hence, whether the anti-competitive entry regulation is justified under bilateral oligopoly depends on the bargaining structure between the upstream and the downstream agents.
    Keywords: Bilateral oligopoly; Excessive entry; Free entry; Insufficient entry

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