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| Miae Kim |
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| ''Promoted Competition : the Incumbent and a New Entry'' |
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| An authority with interests in the improvement of social welfare would consider promoting competition by removing monopolistic side-effects. One method is to provide support to a firm considering entering the market. The incumbent thus faces a new competitive environment then he will decide new pricing strategy not to lose their existing customers. Even though the purpose is to develop a monopoly market into a competitive one, unexpected problems may arise.The new entry may desire to minimize the junk cost of entering the market and thus prefer to use existing facilities to supply the goods rather than investing in new facilities.The incumbent may also have some interest in recovering their losses to the competition. If the interests of each coincide at a point, they may deal with each other in a manner neither desirable for the customer or the social planner.Even in such a duopoly market, some customers continued to maintain support for the incumbent with the higher price, with the result that the new entrant was unable to poach a large portion of customers from the incumbent.Then, how can the authority gain greater welfare effects from this promoted competition?While many papers and articles have discussed the results of privatization, this paper will examine the coincidence of interests of the competitors in minimizing entry cost and how attempts to recover losses from the competition would be an obstacle for the positive effects of a competitive market promoted by force. |
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| Keywords: |
JEL: D4 - Market Structure and Pricing: General
H8 - Public Economics: Miscellaneous Issues: General |
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| Manuscript Received : Feb 28 2008 | | Manuscript Accepted : Feb 28 2008 |
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