Free entry and social efficiency under vertical oligopoly.

From: RAND Journal of Economics | Date: June 22, 2007| Author: Ghosh, Arghya; Morita, Hodaka | Copyright information

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 fo...

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