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Excess Entry Theorem: The Implications of Licensing

 

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Arjit Mukherjee & Soma Mukherjee

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The Manchester School(2008)

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In this paper, we show that, in the presence of technology licensing, entry in an industry with Cournot competition may lead to a socially insufficient, number of firms. Insufficient entry occurs if the own marginal cost of the entrant is sufficiently high.

 

If the own marginal cost of the entrant is very low,  licensing may create excessive entry for those entry costs where entry does not occur without licensing; thus licensing reduces social welfare though it increases competition.

 

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