Andrew E. Burke, Ted To
Can reduced entry barriers worsen market performance? A model of employee entry
JEL classification: L12; L13; K21; L41; L51
Keywords: barriers to entry; antitrust; employee entry
Abstract: The fundamental contribution of this paper is to contest the view reducing barriers to entry cannot retard market performance when firm rivalry is productive. In a model of employee entry, we can demonstrate that a reduction in barriers to entry causes no fall in industry rice when incumbents are able to buy-off potential entry through higher wages. Over longer term, the analysis illustrates that reductions in barriers to entry can cause industry price to be greater than if entry barriers had persisted at their initial level. Correspondingly, the model indicates that investment in endogenous barriers to retry and wage ceilings on executives' salaries may enhance market performance.