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

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.