Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/226254 
Year of Publication: 
2020
Series/Report no.: 
CESifo Working Paper No. 8552
Publisher: 
Center for Economic Studies and Ifo Institute (CESifo), Munich
Abstract: 
We focus on the estimation of market entry costs that are declining over time and evaluate their impact on competition and market performance. We employ a dynamic oligopoly model in which firms make entry, exit, and production decisions in the presence of declining entry costs and learning by doing effects. Focusing on the static random access memory industry, we show that entry costs drastically decline by more than 80 percent throughout the life cycle. This corresponds to entry cost reductions of $30 million per quarter. To show the relevance of declining entry cost, we perform three counterfactuals in which a social planner can (a) regulate entry, (b) charge a tax on entry, and (c) provide a subsidy to promote entry. Our simulations show that declining entry costs can lead to excessive entry costs that result from too early entries by firms. Tax and entry regulation policy can reduce the excessive entry problem having a positive effect on total surplus while reducing consumer welfare. In contrast, a subsidy policy intensifies the problem of excessive entry at early periods but it increases consumer welfare.
Subjects: 
dynamic efficiency gains
entry costs
entry protection
entry regulation
market entry
market structure
semiconductor industry
social planner
subsidies
taxes
JEL: 
C10
L10
L60
O30
Document Type: 
Working Paper
Appears in Collections:

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.