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Seoul Journal of Economics
[ Article ]
Seoul Journal of Economics - Vol. 15, No. 4, pp.485-498
ISSN: 1225-0279 (Print)
Print publication date 30 Nov 2002
Received 21 Apr 2003 Revised 04 Dec 2003

The Social Benefit and Cost of Entry Contest in Oligopoly: Cournot-Nash Oligopoly with Linear Demand

Sanghack Lee ; Gyoung-Gyu Choi
Professor, School of Economics, Kookmin University, Seoul 136-702, South Korea, Tel: +82-2-910-4546, Fax: +82-2-910-4519 slee@kookmin.ac.kr
Research Fellow, Korea Institute for Industrial Economics and Trade (KIET)

JEL Classification: D72, D73, L13

Abstract

This paper examines the social benefit and cost of entry contest when government tries to remove entry regulation in a Cournot-Nash oligopoly. The deregulation process may be plagued with rent seeking by incumbents and potential entrants. When there is rent seeking in the deregulation process, collective contest between potential entrants and incumbents takes place. If the incumbents win, no entry occurs. However, when the potential entrants win, the government distributes licenses to the potential entrants. Given these conditions, this paper obtains the following results. The more potential entrants there are, the more likely it is that the deregulation increases expected social welfare. Moreover, the more licenses the government tries to issue, the higher the probability that the deregulation increases expected social welfare, if there is no fixed cost.

Keywords:

Entry barrier, Entry contest, Deregulation, Oligopoly

Acknowledgments

For their valuable comments and suggestions, the authors wish to thank anonymous referees, In Kwon Lee and seminar participants at Korea Economic Research Institute. The views expressed in this paper do not necessarily reflect those of the institutions with which the authors are affiliated. This research was supported by Korea Research Foundation, (KRF-2001-041-C00240).

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