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Optimal subsidies in the competition between private and state-owned enterprises

Author

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  • Li, Mingzhi
  • Lien, Jaimie W.
  • Zheng, Jie

Abstract

Recent policy discussions have debated whether governments should adopt equal policies towards state-owned and private enterprises. We analyze this issue in a mixed oligopoly setting, in which the government can award different subsidies to these two types of firms. We show that the optimal subsidy policy is equal treatment, regardless of the relative weight on social welfare versus profits by the state-owned enterprise. This result is robust to the form of production, market demand, composition of firm types, and heterogeneity in the objectives of firms. However, heterogeneous cost structures among the firms yield a non-uniform optimal subsidy.

Suggested Citation

  • Li, Mingzhi & Lien, Jaimie W. & Zheng, Jie, 2021. "Optimal subsidies in the competition between private and state-owned enterprises," International Review of Economics & Finance, Elsevier, vol. 76(C), pages 1235-1244.
    • Handle: RePEc:eee:reveco:v:76:y:2021:i:c:p:1235-1244
    DOI: 10.1016/j.iref.2019.11.011
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    References listed on IDEAS

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    1. Kato, Kazuhiko & Tomaru, Yoshihiro, 2007. "Mixed oligopoly, privatization, subsidization, and the order of firms' moves: Several types of objectives," Economics Letters, Elsevier, vol. 96(2), pages 287-292, August.
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    9. Shoji Haruna & Rajeev K. Goel, 2017. "Output subsidies in mixed oligopoly with research spillovers," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 41(2), pages 235-256, April.
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    Cited by:

    1. Han, Haipeng & Lien, Donald & Lien, Jaimie W. & Zheng, Jie, 2022. "Online or face-to-face? Competition among MOOC and regular education providers," International Review of Economics & Finance, Elsevier, vol. 80(C), pages 857-881.
    2. Huang, Naqun & Lien, Jaimie W. & Zheng, Jie, 2023. "To acquire or compete? Government intervention in transportation under different route structures," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 172(C).
    3. Michelacakis, Nickolas J., 2023. "Nash versus consistent equilibrium: A comparative perspective on a mixed duopoly location model of spatial price discrimination with delegation," Regional Science and Urban Economics, Elsevier, vol. 99(C).
    4. He, Wei & Li, Mingzhi & Zheng, Jie, 2023. "Switching cost, network externality and platform competition," International Review of Economics & Finance, Elsevier, vol. 84(C), pages 428-443.

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    More about this item

    Keywords

    State-owned enterprises; Mixed oligopoly; Subsidy policy; Publicization; Privatization;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

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