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Mixed Oligopoly with Distortions: First Best with Budget-balance and the Irrelevance Principle

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  • Prabal Roy chowdhury

    ()
    (Indian Statistical Institute, Delhi Center)

Abstract

This paper extends the literature on mixed oligopoly in two directions. First, it introduces distortions in the working of the public firm, an issue that is of some concern, especially in transitional economies. Thus the classical model of mixed oligopoly emerges as a special case of our formulation. Second, we examine the implementation of the first best outcome in the presence of budget balancing. We show that as long as such distortions are not too severe, these do not prevent the implementation of the first best outcome with budget balancing, with the first best policy involving a tax on the public firm, coupled with subsidies to the private firms. Further, in the absence of any distor tions, implementing the first best with budget balancing necessarily involves complete socialization. This shows the importance of budget balancing to the applicability of the irrelevance principle.

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File URL: http://www.accessecon.com/Pubs/EB/2009/Volume29/EB-09-V29-I3-P36.pdf
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Bibliographic Info

Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 29 (2009)
Issue (Month): 3 ()
Pages: 1873-1888

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Handle: RePEc:ebl:ecbull:eb-09-00378

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Keywords: Mixed oligopoly; public firm; distortion; budget balance; first best; irrelevance principle; privatization.;

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References

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  1. Cremer, H. & Marchand, M. & Thisse, J.-F., 1987. "The public firm as an instrument for regulating an oligopolistic market," CORE Discussion Papers 1987010, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. Fjell, Kenneth & Heywood, John S, 2002. "Public Stackelberg Leadership in a Mixed Oligopoly with Foreign Firms," Australian Economic Papers, Wiley Blackwell, vol. 41(3), pages 267-81, September.
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  6. de Fraja, Giovanni & Delbono, Flavio, 1989. "Alternative Strategies of a Public Enterprise in Oligopoly," Oxford Economic Papers, Oxford University Press, vol. 41(2), pages 302-11, April.
  7. Kolstad, Charles D & Mathiesen, Lars, 1987. "Necessary and Sufficient Conditions for Uniqueness of a Cournot Equilibrium," Review of Economic Studies, Wiley Blackwell, vol. 54(4), pages 681-90, October.
  8. Kenneth Fjell & Debashis Pal, 1996. "A Mixed Oligopoly in the Presence of Foreign Private Firms," Canadian Journal of Economics, Canadian Economics Association, vol. 29(3), pages 737-43, August.
  9. ANDERSON, S. P. & de PALMA, A. & THISSE, J.-F., . "Privatization and efficiency in a differentiated industry," CORE Discussion Papers RP -1298, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  10. repec:ebl:ecbull:v:12:y:2002:i:1:p:1-6 is not listed on IDEAS
  11. Yoshihiro Tomaru, 2006. "Mixed Oligopoly, Partial Privatization and Subsidization," Economics Bulletin, AccessEcon, vol. 12(5), pages 1-6.
  12. Chi-Chur Chao & Eden S. H. Yu, 2006. "Partial Privatization, Foreign Competition, and Optimum Tariff," Review of International Economics, Wiley Blackwell, vol. 14(1), pages 87-92, 02.
  13. Joanna Poyago-Theotoky, 2001. "Mixed oligopoly, subsidization and the order of firms' moves: an irrelevance result," Economics Bulletin, AccessEcon, vol. 12(3), pages 1-5.
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  15. Matsushima, Noriaki & Matsumura, Toshihiro, 2006. "Mixed oligopoly, foreign firms, and location choice," Regional Science and Urban Economics, Elsevier, vol. 36(6), pages 753-772, November.
  16. repec:ebl:ecbull:v:12:y:2006:i:5:p:1-6 is not listed on IDEAS
  17. White, Mark D., 1996. "Mixed oligopoly, privatization and subsidization," Economics Letters, Elsevier, vol. 53(2), pages 189-195, November.
  18. Toshihiro Matsumura & Osamu Kanda, 2005. "Mixed Oligopoly at Free Entry Markets," Journal of Economics, Springer, vol. 84(1), pages 27-48, 02.
  19. Debashis Pal & Mark D. White, 1998. "Mixed Oligopoly, Privatization, and Strategic Trade Policy," Southern Economic Journal, Southern Economic Association, vol. 65(2), pages 264-281, October.
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  22. Kenji Fujiwara, 2007. "Partial Privatization in a Differentiated Mixed Oligopoly," Journal of Economics, Springer, vol. 92(1), pages 51-65, September.
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Cited by:
  1. repec:ebl:ecbull:v:30:y:2010:i:1:p:309-314 is not listed on IDEAS
  2. Kazuhiro Ohnishi, 2010. "Partial privatization in price-setting mixed duopoly," Economics Bulletin, AccessEcon, vol. 30(1), pages 309-314.

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