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Free Entry and Social Inefficiency under Co-opetition

Hattori, Keisuke and Yoshikawa, Takeshi (2013): Free Entry and Social Inefficiency under Co-opetition.

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We investigate the social desirability of free entry in the co-opetition model in which firms compete in a homogeneous product market while sharing common property resources that affect consumers' willingness to pay for products. Our findings show that free entry leads to socially excessive or insufficient market entry in the case of non-commitment co-opetition, depending on the magnitude of "business stealing" and "common property" effects of entry. On the other hand, in the case of pre-commitment co-opetition, free entry leads to excess entry and a decline in common property resources. Interestingly, in this case, the excess entry results of Mankiw and Whinston (1986) and Suzumura and Kiyono (1987) hold even when there are no entry (set-up) costs. These results have important policy implications for entry regulation.

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