Entry, Market Structures and Welfare

Conventionally, entry is thought to enhance welfare by enhancing competition and hence lowering prices and increasing the output. Contrary to the conventional wisdom, working with an n-firm Cournot oligopoly set up and using the trigger strategies, we show that entry may or may not impact welfare. However, entry has the potential to alter the market structure from collusion to Cournot competition, and when it does so, there is a discontinuous rise in welfare.