Some governments regulate a number of surviving firms in a specific industry and/or restraint competition among incumbents to protect them. These governments, however, should implement industrial policies that promote entry and increase the number of operating firms, if they intend to maintain the level of output or employment in the industry. The purpose of this paper is to investigate the policies that a government maintains a target number of firms at the free entry equilibrium in an imperfectly competitive industry, rarely studied by previous researchers. We examine two measures : (1) the government gives a fixed amount of subsidy to firms. (2) The government purchases the output of the industry. We evaluate two measures based on fiscal efficiency, that is, an amount of government expenditure. Okamura and Iiguni (2003) established that subsidy is more fiscal efficient than the government purchase if perfect competition prevails in the target industry. We prove that the government purchase becomes more fiscal efficient if the target number of firms is small and the market size is sufficiently large.

JEL classification : H20, L13, L15