Insufficient Entry in Monopolistic Competition
Explore the concept of insufficient entry in monopolistic competition, discussing the effects on prices and the main factors influencing entry by buyers and sellers in the context of platforms and multi-product firms.
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Presentation Transcript
Insufficient Entry in Monopolistic Competition By Paolo Bertoletti and Federico Etro Discussant: Yaron Yehezkel Tel-Aviv University CRESSE, Crete 2024
Main idea There is insufficient entry in monopolistic competition when: 1) Positive increase in CS due to one more variant 2) Negative business stealing effect (from other firms) The effect of entry on prices Main result: the first two effects are positive when : The elasticity of substitution : The elasticity of CS with respect to the price : The elasticity of demand with respect to the aggregator, Ae Effect 1 Effect 2
Thought: application to platforms Consider a platform that maximizes the gains from trade Implications: 1. The platform under-accommodates sellers A platform may have an incentive to subsidize sellers to motivate more sellers to join the platform 2. Endogenous entry by buyers: suppose that L is endogenous Buyers pay access price to the platform or have an alternative utility to joining a platform Recall that the number of buyers affects the number of sellers What is the condition for insufficient entry by buyers and/or sellers?
Thought: multi-product firms Firms may produce more than one variant Suppose that firms are multi-product and produce n variants What is the condition for insufficient entry by multi-product firms?
