Excess entry in the absence of scale economies (Q868623)

The authors show that with free entry and cost asymmetry amongst firms, excessive entry can occur even in the absence of economies of scale. They consider an entry regulation scenario with (a) strategic interaction between firms and the government where (b) the government is unable to commit -- two features frequently observed especially in developing countries. They consider the case with one efficient and arbitrarily many inefficient firms where the efficient firm can but need not be the leader. If the efficient firm decides to choose its quantity first, they have a Stackelberg game; else the game is Cournot.