Relation entry, exit and productivity: an overview of recent theoretical and empirical literature

However, the theories discussed do provide options for effective policy instruments. We argue that productivity or welfare should be the aim of policy and not the number of entrants, the intensity of competition or the amount of innovation expenditures.

Taking a welfare approach, we address market failures with respect to entry. The most eminent market failure is market power of dominant incumbents. Lowering institutional entry barriers economy-wide is a promising policy option for further consideration.

Whether such a policy measure actually improves social welfare depends also on the extent of other failures. Therefore, an ex ante cost-benefit analysis needs to precede intervention.