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Note on the excess entry theorem in the presence of network externalities

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  • Tsuyoshi Toshimitsu

    (Kwansei Gakuin University)

Abstract

Focusing on the type of consumer expectations, i.e., passive and responsive expectations, we reconsider the excess entry theorem in the case of Cournot oligopoly with network externalities. We demonstrate that whether the number of firms under free entry is socially excessive or insufficient depends on the type of consumer expectations and the degree of network externalities. That is, in the case of passive expectations, if the degree of network externalities is sufficiently large (small), the number of firms under free entry is socially insufficient (excessive), based on the second-best criteria. However, in the case of responsive expectations, the number of firms under free entry is socially excessive, based on the second-best criteria.

Suggested Citation

  • Tsuyoshi Toshimitsu, 2020. "Note on the excess entry theorem in the presence of network externalities," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 47(2), pages 271-282, June.
    • Handle: RePEc:spr:epolin:v:47:y:2020:i:2:d:10.1007_s40812-020-00151-0
    DOI: 10.1007/s40812-020-00151-0
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    References listed on IDEAS

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    1. Arijit Mukherjee & Soma Mukherjee, 2008. "Excess‐Entry Theorem: The Implications Of Licensing," Manchester School, University of Manchester, vol. 76(6), pages 675-689, December.
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    5. Koichi Kagitani & Takao Ohkawa & Makoto Okamura, 2016. "Does the Excess Entry Theorem Hold in a Differentiated Oligopoly?," Manchester School, University of Manchester, vol. 84(3), pages 340-362, June.
    6. Steven T. Berry & Joel Waldfogel, 1999. "Free Entry and Social Inefficiency in Radio Broadcasting," RAND Journal of Economics, The RAND Corporation, vol. 30(3), pages 397-420, Autumn.
    7. Economides, Nicholas, 1996. "Network externalities, complementarities, and invitations to enter," European Journal of Political Economy, Elsevier, vol. 12(2), pages 211-233, September.
    8. N. Gregory Mankiw & Michael D. Whinston, 1986. "Free Entry and Social Inefficiency," RAND Journal of Economics, The RAND Corporation, vol. 17(1), pages 48-58, Spring.
    9. Kotaro Suzumura, 2012. "Excess Entry Theorems After 25 Years," The Japanese Economic Review, Japanese Economic Association, vol. 63(2), pages 152-170, June.
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    Cited by:

    1. 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).
    2. Oleg Andreev & Cong Phan The & Dmitry Gura & Lesya Bozhko, 2022. "The relationship between online retailing and the regional economy," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 49(4), pages 691-711, December.
    3. Qidi Zhang & Leonard F. S. Wang, 2022. "Taxation, Network Externalities, Consumer Suffering, and Profit-Raising Entry: A Cautionary Note," Journal of Industry, Competition and Trade, Springer, vol. 22(2), pages 225-231, June.
    4. Kangsik Choi & DongJoon Lee, 2022. "Network externalities and endogenous timing in managerial firms," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(5), pages 1462-1475, July.

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    More about this item

    Keywords

    Excess entry theorem; Cournot oligopoly; Free entry; Network externality; A fulfilled equilibrium; Passive expectations; Responsive expectations;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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