Rent dissipation and social benefit in regulated entry contests

Abstract

This paper examines entry contests in oligopoly with regulatory barriers to entry when government seeks to issue additional licenses. The entry contests are modeled as a two-stage rent-seeking game between incumbents and potential entrants, with incumbents opposing issuance of additional licenses while the potential entrants try to obtain them. We derive conditions under which the resources expended in the entry contest exceed or fall short of the expected increase in social benefit. Entry deregulation is more likely to increase expected social benefit when incumbents employ a non-cooperative Nash strategy in rent seeking than when they collude.