Entry-License Tax: Stackelberg versus Cournot

Cato, Susumu and Matsumura, Toshihiro (2013): Entry-License Tax: Stackelberg versus Cournot.

Abstract

This study investigates how leadership affects public policies in markets where the number of firms is endogenously determined. We focus on the relationship between the relative efficiency of an incumbent firm and the optimal entry tax (entry barrier). We find that this relationship depends on whether the incumbent can commit to the output before the entries of new firms. The optimal entry tax is decreasing (res. increasing) in the productivity of the incumbent when it takes (res. does not take) leadership. We also find that the optimal entry barrier occurring when the incumbent takes leadership is lower than that when it does not.

• Item Type: MPRA Paper
• Language: English
• Keywords: Stackelberg, Cournot, free entry, entry tax, competition policy, beneficial concentration
• Subjects: L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L13 - Oligopoly and Other Imperfect Markets; L - Industrial Organization > L4 - Antitrust Issues and Policies > L41 - Monopolization ; Horizontal Anticompetitive Practices; L - Industrial Organization > L5 - Regulation and Industrial Policy > L51 - Economics of Regulation

References

Cato, S., Matsumura, T. 2012. Long-run effects of foreign penetration on privatization policies. Journal of Institutional and Theoretical Economics 168(3), 444-454.

Cato, S., Matsumura, T., 2013. Merger and entry-license tax. Economics Letters 119(1), 11-13.

Chen, T. L., 2017. Privatization and efficiency: a mixed oligopoly approach. Journal of Economics 120(3), 251-268.

Davidson, C., Mukherjee, A., 2007. Horizontal mergers with free entry. International Journal of Industrial Organization 25(1), 157-172.

Daughety, A. F., 1990. Beneficial concentration. American Economic Review 80(5), 1231-1237.

Delipalla, S., O'Donnell, O., 2001. Estimating tax incidence, market power and market conduct: The European cigarette industry. International Journal of Industrial Organization 19(6), 885-908.

Djankov, S., 2009. The regulation of entry: A survey. The World Bank Research Observer 24(2), 183-203.

Djankov, S., La Porta, R., Lopez-de-Silanes, F., Shleifer, A., 2002. The regulation of entry. The Quarterly Journal of Economics 117(1), 1-37.

Etro, F., 2004. Innovation by leaders. Economic Journal 114(495), 281--303.

Etro, F., 2006. Aggressive leaders. The RAND Journal of Economics 37(1), 146-154.

Etro, F., 2007. Competition, Innovation, and Antitrust: A Theory of Market Leaders and Its Policy Implications. Springer-Verlag.

Etro, F., 2008. Stackelberg competition with endogenous entry. Economic Journal 118(532), 1670-1697.

Etro, F., 2011a. Endogenous market structures and strategic trade policy. International Economic Review 52(1), 63-84.

Etro, F., 2011b. Endogenous market structures and contract theory: Delegation, principal-agent contracts, screening, franchising and tying. European Economic Review 55(4), 463-479.

Ghosh, A., Morita, H., 2007. Social desirability of free entry: a bilateral oligopoly analysis. International Journal of Industrial Organization 25(5), 925-934.

Gu, Y., Wenzel, T., 2009. A Note on the excess entry theorem in spatial models with elastic demand. International Journal of Industrial Organization 27(5), 567-571.

Ino H., Matsumura, T., 2012. How many firms should be leaders? Beneficial concentration revisited. International Economic Review 53(4), 1323-1340.

Lahiri, S., Ono, Y., 1988. Helping minor firms reduces welfare. Economic Journal 98, 1199-1202.

Lahiri, S., Ono, Y., 1997. Asymmetric oligopoly, international trade, and welfare: a synthesis. Journal of Economics 65(3), 291-310.

Lahiri, S., Ono, Y., 1998. Foreign direct investment, local content requirement, and profit taxation. Economic Journal 108, 444-457.

Lee, S. H. 1999. Optimal taxation for polluting oligopolists with endogenous market structure. Journal of Regulatory Economics 15(3), 293-308.

Mankiw, N.G., Whinston, M.D., 1986. Free entry and social inefficiency. The RAND Journal of Economics 17(1), 48-58.

Matsumura, T., 2000. Entry regulation and social welfare with an integer problem. Journal of Economics 71(1), 47-58.

Matsumura, T., Kanda, O., 2005. Mixed oligopoly at free entry markets. Journal of Economics 84(1), 27-48.

Matsumura, T., Okamura, M., 2006a. A note on the excess entry theorem in spatial markets. International Journal of Industrial Organization 24(5), 1071-1076.

Matsumura, T., Okamura, M., 2006b. Equilibrium number of firms and economic welfare in a spatial price iscrimination model. Economics Letters 90(3), 396-401.

Matsumura, T., Yamagishi, A. 2017a. Long-run welfare effect of energy conservation regulation. Economics Letters 154, 64-68.

Matsumura, T., Yamagishi, A. 2017b. Lobbying for regulation reform by industry leaders. Journal of Regulatory Economics 52(1), 63-76.

Suzumura, K., Kiyono, K., 1987. Entry barriers and economic welfare. The Review of Economic Studies 54(1), 157-167.

Weyl, G. E., Fabinger, M. 2013. Pass-through as an economic tool: Principles of incidence under imperfect competition. Journal of Political Economy 121(3), 528-583.

Wang, L.F.S., Chen, T.-L., 2010. Do cost efficiency gap and foreign competitors matter concerning optimal privatization policy at the free entry market? Journal of Economics 100(1), 33-49.