Free Entry, Market Diffusion, and Social Inefficiency with Endogenously Growing Demand

33 Pages Posted: 13 Feb 2011 Last revised: 25 Apr 2014

See all articles by Hiroshi Kitamura

Hiroshi Kitamura

Kyoto Sangyo University

Akira Miyaoka

Rissho University

Misato Sato

Okayama University - Economics

Date Written: June 17, 2013

Abstract

This paper analyzes market diffusion in the presence of oligopolistic interaction among firms. Market demand is positively related to past market size because of consumer learning, networks, and bandwagon effects. Firms enter the market freely in each period with fixed costs and compete in quantities. We demonstrate that the nature of the inefficiency under free entry can change as the market grows, and more importantly, that S-shaped diffusion can be a signal that the number of firms under free entry is initially insufficient, but eventually excessive.

Keywords: Free Entry, Market Diffusion, Intertemporal Externalities, Oligopolistic Interaction, S-shaped Diffusion

JEL Classification: D11, L11, L14

Suggested Citation

Kitamura, Hiroshi and Miyaoka, Akira and Sato, Misato, Free Entry, Market Diffusion, and Social Inefficiency with Endogenously Growing Demand (June 17, 2013). Journal of the Japanese and International Economies, Vol. 29, 98-116, September 2013, Available at SSRN: https://ssrn.com/abstract=1759192 or http://dx.doi.org/10.2139/ssrn.1759192

Hiroshi Kitamura (Contact Author)

Kyoto Sangyo University ( email )

Motoyama, Kamigamo, Kita-Ku
Kyoto, Kyoto 603-8555
Japan

HOME PAGE: http://sites.google.com/view/hiroshikitamura/home

Akira Miyaoka

Rissho University ( email )

4-2-16
Osaki
Shinagawa, Tokyo 141-8602
Japan

Misato Sato

Okayama University - Economics ( email )

Japan

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