Social Inefficiency of Entry under Imperfect Competition : A Consistent Explanation

Abstract

We consistently explain the excess entry theorem from the standpoint of the difference between the social planner's objective and each firm's one under standard oligopoly model. We introduce industry cost function which is derived from fitting-in function, and establish as follows : (1) Under second-best regulation, the real objective discrepancy results in the social inefficiency of entry from the first-best viewpoint. (2) Under no intervention the fictitious objective discrepancy generates entry bias from the second-best viewpoint, and both discrepancies generate this bias from the first-best one.