Value of Waiting and Excess Entry Theorem

Abstract

By reformulating the Cournot model by making use of the optimal stopping theory, we reconsider the excess entry theorem for a stochastic market. It is revealed that: 1) free entry in a stochastic oligopolistic market is socially excessive, owing not only to the presence of scale economies but also to the value of waiting; 2) welfare maximizing number of the entrants is larger if the market is more uncertain.