Welfare-Reducing Entry in a Differentiated Cournot Oligopoly Without Costs

Abstract

We revisit the relationships between competition and various market outcomes in a differentiated Cournot oligopoly. Consider an oligopolistic market with two differentiated varieties, where each firm sells one of the varieties. We show that social welfare and consumer surplus can decrease with the number of firms when the products of entrants and incumbents are homogeneous. Moreover, an entry of firm can increases prices and profits of firm producing the other variety. We provide a simple exposition of the conditions which determine the effect of an increase in the number of entrants on various market outcomes.