Social efficiency of free entry in differentiated oligopolies

This paper investigates free entry in a model of differentiated oligopolies by showing that social desirability of entry depends on the product differentiation, asymmetric marginal costs and level of product quality among competing firms. Under both the symmetric and asymmetric cases, entry can be socially insufficient if a moderate level of quality is chosen by entrants or the product is more differentiated. Particularly, if the product is less differentiated, entry is always socially excessive. When firms' cost and quality are asymmetric and the incumbent is less competitive, the insufficient entry can be found on a wider scale. Consequently, the anti-competitive entry regulation policies are less justifiable in a market with differentiated oligopolies.