The increasing concentration at industrial markets: the social welfare maximization and possible risks

¹ Far Eastern Federal University. School of Economics and Management, Vladivostok, Russia
² Irkutsk State University, Institute of Mathematics, Economics, and Informatics, Irkutsk, Russia

^* Corresponding author: alexander.filatov@gmail.com

Abstract

The paper considers impact of entry barriers on the social welfare. Despite the common opinion that entry barriers are always bad, the excessive number of firms means, all pros aside, duplicated fixed costs. It is shown that the socially effective number of firms is smaller than the equilibrium one for the wide spectre of demand and cost functions, and also for different strategies of companies’ behavior. This proposition is satisfied for the homogeneous product markets where output of each company decreases when the number of firms increases, and competition gets stronger. But there is the considerable danger of the increasing probability of collusion in a situation of number of firms limitation. We show that collusion is less dangerous than duplicated fixed costs if the gap between the «choke price» and marginal costs is less than a certain critical value connected with the share of fixed costs. The empirical research on the base of the financial statistics of the biggest world corporations of different industries is carried out.