Vi. Conclusion v. Subsidizing Black Firm Entry Ii. the Model

8 structural entry barriers in particular markets may not encourage Black rm entry. 12 Finally , the model suggests a normative perspective on whether or not Black rm entry should be subsidized. Demsetz (1982) has argued that entry barriers may consitute an endogenous response to consumer preferences. If for example, the basis for consumers having a taste for discrimination is their inability to gather and process information relevant to the quality of Black rm output, blockaded Black rm entry becomes a second best social welfare optimum as a result of imperfections in the market for information. 12 In the case of product rms, Heywood (1988) argues that a lowering of structural entry barriers would encourage Black rm entry. F or banking rms, Price (1995) provides results showing that Black-owned commercial bank entry is sensitive to deposit market concentration. 7 Similar to the rst subsidy scheme considered, this result also shows that subsidized Black rm entry does not have an unambigous eect on social welfare. A comparison of the two subsidies reveals that as the size of the required subsidy increases, the scope for successful welfare interventions diminishes. This paper has provided a simple model of duopolistic competition where consumer discrimination exists with uncertainty, and the only cost of production is a 'loss of sales cost' associated with a duopolist pricing his output higher than a rival. Price-prot equilibria were determined in which the expected rate of prot for a Black rm was lower than that of an identical White rm. Given some restrictions on the probability that the consumer cohort faced by each rm has a taste for discrimination, a unique Nash equilibrium was determined in which the dominant strategy of both rms is to charge a low price. Given that consumer discrimination reduced expected Black rm prot below the owner's opportunity cost, a subsidy scheme to encourage Black rm entry was considered. In addition, a socially ecient subsidy to Black rm entry was considered. A welfare analysis showed that subsidizing the entry of a Black rm does not necessarily increase social welfare. Conditions were derived for which a subsidy to a Black rm increases, decreases, or has no eect on social welfare. The model oered here, however formal, has additional implications. First, it suggests an alternative perspective on the factors that deter Black rm entry. Stigler (1968) for example, viewed an entry barrier as a cost of producing borne …