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INSUFFICIENT ENTRY OF EMPLOYEE‐CONTROLLED FIRMS IN A FREE‐ENTRY OLIGOPOLY
Author(s) -
HAMADA Kojun,
OHKAWA Takao,
OKAMURA Makoto
Publication year - 2018
Publication title -
annals of public and cooperative economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.526
H-Index - 37
eISSN - 1467-8292
pISSN - 1370-4788
DOI - 10.1111/apce.12179
Subject(s) - oligopoly , free entry , microeconomics , welfare , profit maximization , profit (economics) , economics , barriers to entry , competition (biology) , industrial organization , market structure , maximization , business , cournot competition , market economy , biology , ecology
This study is a theoretical examination of whether employee‐controlled firms (ECFs) enter a free‐entry oligopolistic market excessively or insufficiently, from the viewpoint of welfare maximization. The excess entry theorem is well known in oligopoly theory. According to this theorem, a greater number of profit‐maximizing firms enter a free‐entry oligopolistic market than is optimal for welfare maximization. We demonstrate the possibility that insufficient entry arises when ECFs compete in a free‐entry market. In particular, we show that if both the demand and cost functions are convex, insufficient ECF entry necessarily occurs. Our results suggest that competition among firms seeking purposes other than profit might lead to insufficient entry because differences in competing firms’ objectives affect the intensity of market competition.