Mixed oligopoly with consumer-friendly public firms
AbstractWe consider a mixed oligopoly with a public firm that maximizes the sum of its own profits and consumers' surplus. We characterize the unique pure strategy equilibrium and show that as long as the cost function is not ``too concave'', privatization reduces welfare. We find that while the first best cannot be implemented using a tax/subsidy policy that is the same for all firms, a budget-balancing policy that involves a tax on the public firm, coupled with subsidies to the private firms, can do so. Further, the optimal tax/subsidy policy is critically dependent on whether there is privatization or not.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 4255.
Date of creation: Jul 2007
Date of revision:
Mixed oligopoly; public firms; subsidy; tax; irrelevance principle; privatization;
Find related papers by JEL classification:
- L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
- L3 - Industrial Organization - - Nonprofit Organizations and Public Enterprise
- L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-08-08 (All new papers)
- NEP-COM-2007-08-08 (Industrial Competition)
- NEP-MIC-2007-08-08 (Microeconomics)
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