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Entry License Tax: Stackelberg versus Cournot

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This study investigates how leadership affects the optimal public policies that impact entry barriers in markets in which the number of firms is endogenously determined. Specifically, we focus on the relationship between the relative efficiency of an incumbent firm and optimal entry tax (entry barrier). We find that this relationship depends on whether the incumbent can commit to its output level before the entries of new firms. The optimal entry tax decreases (increases) with the productivity of the incumbent when it takes (does not take) leadership. We also find that the optimal entry barrier occurring when the incumbent takes leadership is lower than that when it does not. (JEL: L41, L51, L13)
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Keywords: Cournot; Stackelberg; beneficial concentration; competition policy; entry tax; free entry

Appeared or available online: November 30, 2018

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