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Free and second‐best entry in oligopolies with network effects

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  • Adriana Gama
  • Mario Samano

Abstract

We compare the number of firms in equilibrium in a Cournot industry with positive network effects and complete compatibility, under free and second‐best entry. Under free entry, the firms decide whether to enter the market or not; in the second‐best problem, the number of firms is established by the regulator to maximize social welfare (the regulator controls entry but not production). We show that when individual equilibrium output decreases with entry (business‐stealing competition), free entry may lead to more or less firms than the second‐best problem. This contrasts with the standard (nonnetwork) Cournot oligopoly model, wherein with business‐stealing competition, free entry leads to an excessive number of firms compared with the second‐best solution.

Suggested Citation

  • Adriana Gama & Mario Samano, 2021. "Free and second‐best entry in oligopolies with network effects," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 23(4), pages 746-759, August.
    • Handle: RePEc:bla:jpbect:v:23:y:2021:i:4:p:746-759
    DOI: 10.1111/jpet.12512
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    References listed on IDEAS

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    6. Adriana Gama & Rim Lahmandi-Ayed & Ana Elisa Pereira, 2020. "Entry and mergers in oligopoly with firm-specific network effects," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 70(4), pages 1139-1164, November.
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    Cited by:

    1. Laszlo Goerke, 2022. "Endogenous Market Structure and Partisan Competition Authorities," IAAEU Discussion Papers 202201, Institute of Labour Law and Industrial Relations in the European Union (IAAEU).
    2. Marco de Pinto & Laszlo Goerke & Alberto Palermo, 2024. "Business Stealing + Economic Rent = Insufficient Entry? An Integrative Framework," IAAEU Discussion Papers 202402, Institute of Labour Law and Industrial Relations in the European Union (IAAEU).

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