Stackelberg Competition, Innovation and Social Efficiency of Entry

In literature, the common wisdom is that entry in an industry with homogeneous products may be socially insufficient instead of excessive in the absence of scale economies. In this paper, we formally introduce endogenous research and development (R&D) and cost asymmetry into both Cournot and Stackelberg competition, and show that entry is socially insufficient in the presence of ex ante asymmetric costs coupled with the spillover effect of R&D.