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EXCESS‐ENTRY THEOREM: THE IMPLICATIONS OF LICENSING*
Author(s) -
MUKHERJEE ARIJIT,
MUKHERJEE SOMA
Publication year - 2008
Publication title -
the manchester school
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.361
H-Index - 42
eISSN - 1467-9957
pISSN - 1463-6786
DOI - 10.1111/j.1467-9957.2008.01088.x
Subject(s) - barriers to entry , cournot competition , free entry , marginal cost , competition (biology) , economics , microeconomics , welfare , social welfare , industrial organization , market structure , market economy , ecology , political science , law , biology
We show that, in the presence of technology licensing, entry in an industry with Cournot competition may lead to a socially insufficient, number of firms. Insufficient entry occurs if the own marginal cost of the entrant is sufficiently high. Hence, the justification for anticompetitive entry regulation due to the standard excess‐entry result may not be justified in the presence of licensing. However, if the own marginal cost of the entrant is very low, licensing may create excessive entry for those entry costs where entry does not occur without licensing; thus licensing reduces social welfare though it increases competition.