Excess Capacity Investment: Government versus Private Firms
AbstractA supergame between public and private firms in an oligopolist industry is studied in this paper. We discover that there is a repeated-game equilibrium where the public firm produces less than its one-shot Nash equilibrium quantity, nevertheless the total supply and hence the social welfare are higher than in the one-shot Nash equilibrium. In such an equilibrium, the public firm, who is a social welfare maximiser, contracts its production below its full capacity in order to encourage the private firm's expansion.
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Bibliographic InfoPaper provided by The University of Melbourne in its series Department of Economics - Working Papers Series with number 626.
Length: 20 pages
Date of creation: 1998
Date of revision:
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Postal: Department of Economics, The University of Melbourne, 5th Floor, Economics and Commerce Building, Victoria, 3010, Australia
Phone: +61 3 8344 5289
Fax: +61 3 8344 6899
Web page: http://www.economics.unimelb.edu.au
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INVESTMENTS ; GOVERNMENT ; PUBLIC ENTERPRISES;
Find related papers by JEL classification:
- L32 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Public Enterprises; Public-Private Enterprises
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods
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