Abstract
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.
Keywords
Entry, Bayes-Cournot game, Welfare;
JEL codes
- D82: Asymmetric and Private Information • Mechanism Design
- L13: Oligopoly and Other Imperfect Markets
- L50: General
Reference
Michele Bisceglia, Jorge Padilla, Joe Perkins, and Salvatore Piccolo, “On Excessive Entry in Bayes-Cournot Oligopoly”, The RAND Journal of Economics, vol. 55, n. 4, December 2024, pp. 719–748.
Published in
The RAND Journal of Economics, vol. 55, n. 4, December 2024, pp. 719–748