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Public Private Competition

Author

Listed:
  • Klumpp, Tilman

    (University of Alberta, Department of Economics)

  • Su, Xuejuan

    (University of Alberta, Department of Economics)

Abstract

We examine competition between a private and a public provider in markets for "merit goods" such as education, healthcare, housing, recreation, or culture. The private firm provides a high-price/high-quality variety of the good and serves richer individuals, while the public firm provides a low-price/low-quality variety and serves poorer individuals. We derive the private competitor's best response to changes in the public firm's price and quality level. This enables us to examine the distributional effects of government policies aimed at making publicly provided goods more affordable or increase their quality, and of changes to the government budget constraint that make publicly provided goods more expensive or decrease their quality. Our results have implications for the financing of the public supply of such goods, and for whether additional resources, if available, should be spent on reducing the price or enhancing the quality of publicly provided goods.

Suggested Citation

  • Klumpp, Tilman & Su, Xuejuan, 2017. "Public Private Competition," Working Papers 2017-10, University of Alberta, Department of Economics.
    • Handle: RePEc:ris:albaec:2017_010
    as

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    File URL: https://sites.ualberta.ca/~econwps/2017/wp2017-10.pdf
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    References listed on IDEAS

    as
    1. Motta, Massimo, 1993. "Endogenous Quality Choice: Price vs. Quantity Competition," Journal of Industrial Economics, Wiley Blackwell, vol. 41(2), pages 113-131, June.
    2. Ishida, Junichiro & Matsushima, Noriaki, 2009. "Should civil servants be restricted in wage bargaining? A mixed-duopoly approach," Journal of Public Economics, Elsevier, vol. 93(3-4), pages 634-646, April.
    3. Victor R. Fuchs, 1996. "Individual and Social Responsibility: Child Care, Education, Medical Care, and Long-Term Care in America," NBER Books, National Bureau of Economic Research, Inc, number fuch96-1, March.
    4. Barros, Fatima, 1995. "Incentive schemes as strategic variables: An application to a mixed duopoly," International Journal of Industrial Organization, Elsevier, vol. 13(3), pages 373-386, September.
    5. Fuchs, Victor R. (ed.), 1996. "Individual and Social Responsibility," National Bureau of Economic Research Books, University of Chicago Press, edition 1, number 9780226267869, December.
    6. Choi, Chong Ju & Shin, Hyun Song, 1992. "A Comment on a Model of Vertical Product Differentiation," Journal of Industrial Economics, Wiley Blackwell, vol. 40(2), pages 229-231, June.
    7. repec:wly:soecon:v:81:2:y:2014:p:457-473 is not listed on IDEAS
    8. James M. Poterba, 1996. "Government Intervention in the Markets for Education and Health Care: How and Why?," NBER Chapters, in: Individual and Social Responsibility: Child Care, Education, Medical Care, and Long-Term Care in America, pages 277-308, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Mixed duopoly; quality differentiation; public provision of private goods; private responses to public policy; crowding-out/in; funding of public services;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods
    • H44 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Goods: Mixed Markets
    • I00 - Health, Education, and Welfare - - General - - - General
    • L38 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Public Policy

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