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Does the entrance fee for a monopoly platform with monopolistic competition eliminate socially desirable products?
Author(s) -
Chang Ming Chung,
Peng HsiaoPing,
Ho YanChing
Publication year - 2015
Publication title -
international journal of economic theory
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.351
H-Index - 11
eISSN - 1742-7363
pISSN - 1742-7355
DOI - 10.1111/ijet.12069
Subject(s) - monopoly , monopolistic competition , revenue , microeconomics , economics , competition (biology) , product (mathematics) , industrial organization , product differentiation , business , fixed cost , product market , free entry , variety (cybernetics) , welfare , commerce , market economy , finance , incentive , cournot competition , computer science , ecology , geometry , mathematics , artificial intelligence , biology
This paper is concerned with a monopoly platform in which firms compete by setting quantities, each producing a variety of differentiated goods. Should a firm desire to enter the platform, it must pay an entrance fee to the platform owner, as well as incur a fixed setup cost. Since the platform can be maintained at zero cost, the platform owner aims to maximize the total entrance fee revenue. When a product is introduced, it reduces the prices of the other goods, thereby adversely affecting the revenue of other firms. Under condition of free entry, the entering firm does not take this effect into account. In contrast, the platform owner does take it into account. As a result, the entrance fee may act to raise welfare by eliminating socially undesirable goods.