IDEAS home Printed from https://ideas.repec.org/a/bla/annpce/v94y2023i2p631-658.html
   My bibliography  Save this article

How to eliminate the uncovered market: A duopoly model with government intervention

Author

Listed:
  • Dongmin Yao
  • Pengyuan Zhang
  • Xiaoyu Meng

Abstract

To eliminate poverty, government intervention is critical for addressing uncovered markets. To assess how this can be done effectively, this study constructs a two‐firm model with government intervention. The study focuses on the preconditions, methods, and effects of different government intervention strategies. There are three main findings. (1) When consumer income levels fall below a certain threshold, an uncovered market segment is created, and government intervention should be introduced. (2) Government intervention strategies can be divided into subsidy‐type, production‐type and mixed‐type, and each type achieves a different level of consumer surplus. Given a level of consumer surplus, the optimal strategy is affected by production costs. (3) For production‐type and mixed‐type intervention strategies, when the market is covered, lower intervention costs can achieve higher consumer surplus if government production costs are low. Furthermore, the optimal subsidy‐type intervention strategy varies with the changes in product quality if relaxing the precondition of market coverage.

Suggested Citation

  • Dongmin Yao & Pengyuan Zhang & Xiaoyu Meng, 2023. "How to eliminate the uncovered market: A duopoly model with government intervention," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 94(2), pages 631-658, June.
  • Handle: RePEc:bla:annpce:v:94:y:2023:i:2:p:631-658
    DOI: 10.1111/apce.12395
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/apce.12395
    Download Restriction: no

    File URL: https://libkey.io/10.1111/apce.12395?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Wauthy, Xavier, 1996. "Quality Choice in Models of Vertical Differentiation," Journal of Industrial Economics, Wiley Blackwell, vol. 44(3), pages 345-353, September.
    2. Jaskold Gabszewicz, J. & Thisse, J. -F., 1979. "Price competition, quality and income disparities," Journal of Economic Theory, Elsevier, vol. 20(3), pages 340-359, June.
    3. Gao, Qin & Yang, Sui & Li, Shi, 2015. "Welfare, targeting, and anti-poverty effectiveness: The case of urban China," The Quarterly Review of Economics and Finance, Elsevier, vol. 56(C), pages 30-42.
    4. De Fraja, Giovanni, 1993. "Productive efficiency in public and private firms," Journal of Public Economics, Elsevier, vol. 50(1), pages 15-30, January.
    5. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
    6. Georgi Burlakov, 2015. "Exogenous Expenses in Industries with Vertical Product Differentiation and Quality Constraints," CERGE-EI Working Papers wp530, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    7. Marcus SIDKI & David BOLL, 2019. "What Do Citizens Think About Public Enterprises? Subjective Survey Data On The Legitimacy Of The Economic Activities Of The German Public Sector," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 90(4), pages 615-639, December.
    8. Choi, Chong Ju & Shin, Hyun Song, 1992. "A Comment on a Model of Vertical Product Differentiation," Journal of Industrial Economics, Wiley Blackwell, vol. 40(2), pages 229-231, June.
    9. Avner Shaked & John Sutton, 1982. "Relaxing Price Competition Through Product Differentiation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 49(1), pages 3-13.
    10. Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
    11. Economides, Nicholas, 1984. "The principle of minimum differentiation revisited," European Economic Review, Elsevier, vol. 24(3), pages 345-368, April.
    12. Jeffry M. Netter & William L. Megginson, 2001. "From State to Market: A Survey of Empirical Studies on Privatization," Journal of Economic Literature, American Economic Association, vol. 39(2), pages 321-389, June.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Acharyya, Rajat, 1998. "Monopoly and product quality: Separating or pooling menu?," Economics Letters, Elsevier, vol. 61(2), pages 187-194, November.
    2. Kahina Cherfi-Feroukhi & Said Souam, 2019. "Formal and Informal Interactions in a Duopoly Model," Economics Bulletin, AccessEcon, vol. 39(2), pages 1095-1102.
    3. Luigi Filippini, 1999. "Leapfrogging in a Vertical Product Differentiation Model," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 6(2), pages 245-256.
    4. Constantatos, Christos & Perrakis, Stylianos, 1995. "Différenciation verticale et structure du marché," L'Actualité Economique, Société Canadienne de Science Economique, vol. 71(1), pages 71-98, mars.
    5. Fabian Herweg, 2012. "Relaxing competition through quality differentiation and price discrimination," Journal of Economics, Springer, vol. 106(1), pages 1-26, May.
    6. Onur A. Koska, 2020. "Sourcing product quality for foreign market entry," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 156(3), pages 669-702, August.
    7. MATHUR Sameer & DEWANI Prem Prakash, 2015. "Market Entry, Product Quality And Price Competition," Studies in Business and Economics, Lucian Blaga University of Sibiu, Faculty of Economic Sciences, vol. 10(2), pages 62-82, August.
    8. Ralph Siebert, 2003. "The Introduction of New Product Qualities by Incumbent Firms: Market Proliferation versus Cannibalization," CIG Working Papers SP II 2003-11, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
    9. Benassi, Corrado & Castellani, Massimiliano & Mussoni, Maurizio, 2016. "Price equilibrium and willingness to pay in a vertically differentiated mixed duopoly," Journal of Economic Behavior & Organization, Elsevier, vol. 125(C), pages 86-96.
    10. Corrado Benassi & Alessandra Chirco & Caterina Colombo, 2019. "Vertical differentiation beyond the uniform distribution," Journal of Economics, Springer, vol. 126(3), pages 221-248, April.
    11. Li, Youping, 2014. "Price leadership in a vertically differentiated market," Economic Modelling, Elsevier, vol. 38(C), pages 67-70.
    12. Herweg, Fabian, 2007. "Can price discrimination lead to product differentiation? A vertical differentiation model," Bonn Econ Discussion Papers 2/2007, University of Bonn, Bonn Graduate School of Economics (BGSE).
    13. Ashantha Ranasinghe & Xuejuan Su, 2023. "When social assistance meets market power: A mixed duopoly view of health insurance in the United States," Economic Inquiry, Western Economic Association International, vol. 61(4), pages 851-869, October.
    14. Cédric Argenton, 2010. "Exclusive Quality," Journal of Industrial Economics, Wiley Blackwell, vol. 58(3), pages 690-716, September.
    15. Wang, X. Henry & Yang, Bill Z., 2001. "Mixed-strategy equilibria in a quality differentiation model," International Journal of Industrial Organization, Elsevier, vol. 19(1-2), pages 213-226, January.
    16. C. Benassi & A. Chirco & C. Colombo, 2015. "Beyond the Uniform Distribution: Equilibrium Prices and Qualities in a Vertically Differentiated Duopoly," Working Papers wp1044, Dipartimento Scienze Economiche, Universita' di Bologna.
    17. Emanuele Bacchiega & Antonio Minniti & Arsen Palestini, 2016. "Quality, distance and trade: A strategic approach," Papers in Regional Science, Wiley Blackwell, vol. 95, pages 165-191, March.
    18. Ngo Van Long & Zhuang Miao, 2020. "Multiple‐quality Cournot oligopoly and the role of market size," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 29(4), pages 932-952, October.
    19. Lutz, Stefan H., 2002. "The Effects of Quotas on Vertical Intra-Industry Trade," ZEW Discussion Papers 02-61, ZEW - Leibniz Centre for European Economic Research.
    20. Peter-J. Jost, 2023. "Price commitment and the strategic launch of a fighter brand," Quantitative Marketing and Economics (QME), Springer, vol. 21(3), pages 381-435, September.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:annpce:v:94:y:2023:i:2:p:631-658. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.blackwellpublishing.com/journal.asp?ref=1370-4788 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.