Symmetric Cournot oligopoly and economic welfare: a synthesis

Summary Recently, Mankiw-Whinston (1986) and Suzumura-Kiyono (1987) have shown that socially excessive firm entry occurs in unregulated oligopoly. This paper extends this excess entry results by looking into strategic aspects of costreducing R&D investment that creates incentives towards socially excessive investments. In the first stage, firms decide whether or not to enter the market. In the second stage, firms make a commitment to cost-reducing R&D investment. In the third stage, firms compete in output quantities. It is shown that the excess entry holds even in the presence of strategic commitments.This is the synthesized version of the two earlier papers, Okuno-Fujiwara and Suzumura (1988) and Suzumura (1991). We are grateful to Professors J. Brander, D. Cass, M. Majumdar, A. Postlewaite, J. Richmond, A. Sandmo, B. Spencer and J. Vickers for their helpful comments and discussions on earlier drafts. Needless to say, they should not be held responsible for any remaining defects. Financial supports from the Japan Center for Economic Research, Tokyo Center for Economic Research, the Japanese Ministry of Education, and the Institute for Monetary and Economic Research, the Bank of Japan are gratefully acknowledged.