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Is Lowering Entry Barriers Always Good?

The goal of deregulation has to be to establish well-functioning, competitive market economies. To this end, priority has to be given to the mitigation of distortions involved with allocation across incumbent producers rather than elimination of entry barriers, especially in developing economies. For instance, deregulating factor adjustment and facilitating factor reallocation across incumbent producers would contribute to aggregate TFP gain. This way, a market selection mechanism is at work so that surviving producers are more productive than the ones that cannot survive. Reallocation between incumbent producers and entrants would naturally ensue once reallocation across incumbent producers is sustained in the proper direction.
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