Does Corporate Governance Matter for Social Efficiency of Entry?

Abstract

We adopt the notion of cost reduction that comes from better and good governance within the firm's organization, and explore the strategic interaction between corporate governance and market competition. The question we are asking is that does corporate governance matter for social efficiency of entry in oligopolistic competition. We find that if entry costs are relatively large, the entry into the society is insufficient. The number of low-efficiency firms under free entry equilibrium is less than the number of low-efficiency firms under welfare maximization. The important implication of our finding is that competition-promoting policy in oligopolistic industry needs the support from internal governance of the firms.