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Strategic delegation in spatial price discrimination mixed duopoly; Nash is consistent at the presence of a public firm

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  • Michelacakis, Nickolas

Abstract

We consider a mixed ownership duopoly delegation model with spatial price discrimination and constant, albeit different, marginal production costs. In contrast to what holds true for a private duopoly, the Nash equilibrium, absent delegation, for a mixed duopoly with discriminatory pricing according to location is both consistent and socially optimal. We find that under Nash conjectures, in most cases, firm owners have a strong incentive to delegate location decisions to managers. In such cases, firms locate closer to each other. The intensity of the competition leads to lower prices, lower profits, for both firms, and increased surplus for the consumer.

Suggested Citation

  • Michelacakis, Nickolas, 2021. "Strategic delegation in spatial price discrimination mixed duopoly; Nash is consistent at the presence of a public firm," MPRA Paper 109011, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:109011
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    File URL: https://mpra.ub.uni-muenchen.de/109011/1/MPRA_paper_109011.pdf
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    References listed on IDEAS

    as
    1. A. P. Lerner & H. W. Singer, 1937. "Some Notes on Duopoly and Spatial Competition," Journal of Political Economy, University of Chicago Press, vol. 45(2), pages 145-145.
    2. Bresnahan, Timothy F, 1981. "Duopoly Models with Consistent Conjectures," American Economic Review, American Economic Association, vol. 71(5), pages 934-945, December.
    3. John Heywood & Zheng Wang, 2016. "Consistent location conjectures under spatial price discrimination," Journal of Economics, Springer, vol. 117(2), pages 167-180, March.
    4. Lederer, Phillip J & Hurter, Arthur P, Jr, 1986. "Competition of Firms: Discriminatory Pricing and Location," Econometrica, Econometric Society, vol. 54(3), pages 623-640, May.
    5. Vickers, John, 1985. "Delegation and the Theory of the Firm," Economic Journal, Royal Economic Society, vol. 95(380a), pages 138-147, Supplemen.
    6. Fershtman, Chaim & Judd, Kenneth L, 1987. "Equilibrium Incentives in Oligopoly," American Economic Review, American Economic Association, vol. 77(5), pages 927-940, December.
    7. Steven D. Sklivas, 1987. "The Strategic Choice of Managerial Incentives," RAND Journal of Economics, The RAND Corporation, vol. 18(3), pages 452-458, Autumn.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    mixed duopoly; delegation; spatial competition; consistent conjectures; Nash equilibrium;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • R32 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Other Spatial Production and Pricing Analysis

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