Does entry improve welfare? A general equilibrium approach to competition policy

We consider a simple general equilibrium model with imperfect competition. Firms are price takers in the input market and compete A la Cournot in some or all of the product markets and their technologies display constant returns to scale. We show that an increase in the number of firms in a given sector does not always improve welfare. We also provide a characterization in terms of mark-up rates of the sectors for which entry is welfare enhancing. Our results challenge the common idea that mergers with no cost synergy are not desirable for consumers.