A note on the excess entry theorem in spatial models with elastic demand

Yiquan Gu, Tobias Wenzel

Research output: Contribution to journalArticle

33 Citations (Scopus)

Abstract

This paper revisits the excess entry theorem in spatial models according to Vickrey [Vickrey, W.S., 1964. Microstatics. Harcourt, Brace and World, New York] and Salop [Salop, S., 1979. Monopolistic competition with outside goods. Bell Journal of Economics 10, 141-156] while relaxing the assumption of inelastic demand. Using a demand function with a constant demand elasticity, we show that the number of firms that enter a market decreases with the degree of demand elasticity. We find that the excess entry theorem does only hold when the demand elasticity is sufficiently small. Otherwise, there is insufficient entry. In the limiting case of unit elastic demand, the market is monopolized. We broaden our results with a more general transportation cost function.

Original languageEnglish
Pages (from-to)567-571
Number of pages5
JournalInternational Journal of Industrial Organization
Volume27
Issue number5
DOIs
Publication statusPublished - 1 Sep 2009

Keywords

  • Elastic demand
  • Excess entry theorem
  • Spatial models

ASJC Scopus subject areas

  • Industrial and Manufacturing Engineering
  • Industrial relations
  • Strategy and Management
  • Aerospace Engineering

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