A research on market competition and social welfare : Technology investments, firm heterogeneity, and vertical trading

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We investigate how market competition affects firm profits and social welfare. We especially take into account three aspects : technology investments, firm heterogeneity, and vertical trading. We investigate several market structures and show interesting results related to market competition. For instance, we show a market condition that entry of inefficient firms enhances the incentive of incumbent efficient firms to engage in cost-reducing activities. If the effect of entry works well, the profits of those efficient firms can increase by the entry. That is, market entry can benefit incumbent firms. Furthermore, entry by sufficiently inefficient firms can benefit social welfare, which is contrast with the existing results.