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European Economic Review 48 (2004) 943 – 957 www.elsevier.com/locate/econbase

Simultaneous entry and welfare
LuÃs M.B. Cabrala; b;∗ a Leonard

N. Stern School of Business, New York University, 44 West 4th Street, New York, NY 10012, USA b CEPR, London, UK Received 3 July 2002; accepted 13 June 2003

Abstract I examine the welfare properties of free entry under conditions of simultaneous entry. Specifically, I consider the second-best problem of in uencing the number of entrants while taking as given ÿrm behavior upon entry. I consider two alternative models of simultaneous entry: grab-the-dollar entry and war-of-attrition entry. I show that, if entry costs are low, then the results from previous models of sequential entry are fairly robust to the possibility of simultaneous entry. If however entry costs are high, then the welfare e ects of free entry depend delicately on the nature of the entry game being played. c 2003 Elsevier B.V. All rights reserved.
JEL classiÿcation: L1; L6; L9 Keywords: Entry; Welfare

1. Introduction Economists frequently presume that free entry is desirable from a social welfare point of view. In fact, free entry is one of the conditions underlying the First Welfare Theorem. However, it is well known that, once one of the conditions for the theorem is removed, the other conditions are no longer necessarily desirable (Lipsey and Lancaster, 1956). Speciÿcally, a number of authors have shown that, once we abandon the assumption of competitive pricing behavior, free entry may no longer be a good thing. See Williamson (1968), Spence (1976), Dixit and Stiglitz (1977),
A previous version of this paper was circulated under the title “Entry Mistakes”. Corresponding address. Stern School of Business, New York University, 44 West 4th Street, New York, NY 10012, USA. Tel.: +1-212-998-0858; fax: +1-212-998-0958. E-mail address:

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