Input Constraints and the Efficiency of Entry: Lessons from Cardiac Surgery
نویسندگان
چکیده
The classic welfare analysis of firm entry involves a trade-off between the benefits of competition and losses from rent seeking. The benefits of competition are straightforward. The rent-seeking losses stem from the fact that part of an entrant’s profit is generated by stealing business from incumbent firms. These transferred profits are not a social benefit, but the fixed outlays associated with entry represent a social cost. Under these conditions, N. Gregory Mankiw and Michael D. Whinston (1986) show that excessive entry is likely. This standard model, however, does not address a key feature of many industries—the inelastic supply of certain factors of production, such as labor or land. We consider the impact of such constrained inputs on the welfare economics of entry by studying hospital entry into the
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