Excess Entry, Entry Regulation, and Entrant's Incentive

Excess entry theorem, which shows that the free market can generate too many firms, is a theoretic base for entry regulation. When the current market is a monopoly, entry is considered as excessive if the social welfare under the post-entry Cournot-Nash equilibrium, net of entry coast, is lower than that under monopoly. However, this paper argues that, even if this is true, limiting entry is not an optimal choice of the benevolent government. The entrant has an incentive to produce more than the Cournot-Nash equilibrium output level to get an entry permission as long as it is still profitable to enter. Therefore, an entry regulation which imposes entry condition, rather than just limiting entry, that the new entrant produces enough to make entry welfare increasing, will be an optimal regulation against excess entry problem. Limiting entry based on the excess entry theorem is a wrong policy, since it ignores the strategic reaction by the new entrant. Entry regulation can cure excess entry problem not by limiting entry but by imposing conditions on entry, since the latter is equivalent to a price regulation on the imperfect post-entry oligopoly market.

Optimality of Entry Regulation under Incomplete Information

The lack of complete information of the government has been considered as a barrier to the optimal regulation, as it is well-known in price regulations literature. However, it is not true for the entry regulation: This paper shows that the performance of the entry regulation under incomplete information can be better than that under complete information. Under incomplete information, the incumbent firm would deviate from the monopoly behavior to signal itself as an efficient type and to trigger entry regulation which prevents excess entry in case that the incumbent is efficient. As a result, social welfare can be even higher than under complete information, since not only the optimal post-entry market structure is achieved as under complete information but the pre-entry price is even lower than that under complete information.Incomplete Information, Excess Entry, Entry Regulation, Signaling

Signaling Rather than Incentive Mechanism for Entry Regulation

The lack of complete information has been considered as a barrier to the optimal regulation. This paper shows that this is true for price regulation, but not for entry regulation. The performance of an entry regulation under asymmetric information can be better than that under complete information, if the government uses signaling mechanism rather than incentive mechanism. The main difference between screening and signaling is who initiates information transmission process. Contrary to the incentive mechanism for the optimal price regulation, the signaling mechanism induces the regulated firm to deviate from the monopoly behavior to signal itself and to trigger entry regulation. As a result, the social welfare under asymmetric information can be even higher than under complete information.asymmetric information, entry regulation, signaling, incentive mechanism

Anti-competitiveness of Instant Messenger Tying by Microsoft

In this paper, we theoretically analyze Microsoft's tying practice in the instant messenger market. Using a model that highlights distinct features of the instant messenger, which are different from the cases of the web browser and the media player, we show that Microsoft can leverage its monopoly power in the operating system (OS) market to the instant messenger market through tying strategy. Microsoft's messenger tying hurts consumers because it enables Microsoft to monopolize messenger market and so fully exploit consumer's willingness to pay to the OS-messenger bundle. However, since tying saves installing costs, consumer loss is not so serious that total surplus improves under messenger tying. Finally we show that such results are robust to the possibilities of multi-homing in the instant messenger market.Microsoft, instant messenger, tying, foreclosure, multi-homing

Litigation Selection as a Signal under Asymmetric Information: A Two-Type Model with Alternating Bargaining Offers

This paper studies the signaling role of the litigation/settlement selection under asymmetric information. As an attempt to improve existing asymmetric information theory, we separate litigation/settlement selection process and the actual settlement bargaining process, and adopt an infinitely repeated settlement bargaining with alternating offers, instead of the extreme 'take-it-or-leave-it' offer which has been frequently assumed in current literature. Upon the explicit derivation of the sequential equilibria, we interpret heuristically the role of asymmetric information in litigation selection, and provide comprehensive comparative static analyses for more concrete empirical testing of asymmetric information theory.asymmetric information, signaling, litigation, settlement, win rate