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On Public Inefficiencies in a Mixed Duopoly

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Author Info
Giuseppe De Feo () (Department of Economics, University of Strathclyde)
Carlo Capuano () (Department of Economics, University of Naples Federico II, Complesso Universitario di Monte S.Angelo)

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Abstract

The aim of this paper is to investigate the welfare effect of a change in the public firm's objective function in oligopoly when the government takes into account the distortionary effect of rising funds by taxation (shadow cost of public funds). We analyze the impact of a shift from welfare- to profit-maximizing behaviour of the public firm on the timing of competition by endogenizing the determination of simultaneous (Nash-Cournot) versus sequential (Stackelberg) games using the game with observable delay proposed by Hamilton and Slutsky (1990). Differently from previous work that assumed the timing of competition, we show that, absent efficiency gains, instructing the public firm to play as a private one never increases welfare. Moreover, even when large efficiency gains result from the shift in public firm's objective, an inefficient public firm that maximizes welfare may be preferred.

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Publisher Info
Paper provided by University of Strathclyde Business School, Department of Economics in its series Working Papers with number 09-16.

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Length: 26 pages
Date of creation: Jul 2009
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Handle: RePEc:str:wpaper:0916

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Related research
Keywords: Mixed oligopoly; Nash equilibria; Endogenous Timing; Distortionary taxes;

Find related papers by JEL classification:
L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
L32 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Public Enterprises
L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Boundaries of Public and Private Enterprise; Privatization; Contracting Out

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References listed on IDEAS
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  1. Hamilton, Jonathan H. & Slutsky, Steven M., 1990. "Endogenous timing in duopoly games: Stackelberg or cournot equilibria," Games and Economic Behavior, Elsevier, vol. 2(1), pages 29-46, March. [Downloadable!] (restricted)
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  2. J Hindriks & D Claude, 2006. "Strategic Privatization and Regulation Policy in Mixed Markets," Icfai University Journal of Managerial Economics, Icfai Press, vol. 0(1), pages 7-26, February.
    Other versions:
  3. Laffont, Jean-Jacques & Tirole, Jean, 1986. "Using Cost Observation to Regulate Firms," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 614-41, June. [Downloadable!] (restricted)
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  4. Pal, Debashis, 1998. "Endogenous timing in a mixed oligopoly," Economics Letters, Elsevier, vol. 61(2), pages 181-185, November. [Downloadable!] (restricted)
  5. Amir, Rabah & Grilo, Isabel, 1999. "Stackelberg versus Cournot Equilibrium," Games and Economic Behavior, Elsevier, vol. 26(1), pages 1-21, January. [Downloadable!] (restricted)
  6. Debashis Pal & Mark D. White, 1998. "Mixed Oligopoly, Privatization, and Strategic Trade Policy," Southern Economic Journal, Southern Economic Association, vol. 65(2), pages 264-281, October.
  7. Willner, Johan, 2001. "Ownership, efficiency, and political interference," European Journal of Political Economy, Elsevier, vol. 17(4), pages 723-748, November. [Downloadable!] (restricted)
  8. Matsumura, Toshihiro, 1998. "Partial privatization in mixed duopoly," Journal of Public Economics, Elsevier, vol. 70(3), pages 473-483, December. [Downloadable!] (restricted)
  9. Kenneth Fjell & Debashis Pal, 1996. "A Mixed Oligopoly in the Presence of Foreign Private Firms," Canadian Journal of Economics, Canadian Economics Association, vol. 29(3), pages 737-43, August. [Downloadable!] (restricted)
  10. William L. Megginson & Jeffry M. Netter, 2001. "From State to Market: A Survey of Empirical Studies on Privatization," Journal of Economic Literature, American Economic Association, vol. 39(2), pages 321-389, June. [Downloadable!] (restricted)
  11. Amir, Rabah & Stepanova, Anna, 2006. "Second-mover advantage and price leadership in Bertrand duopoly," Games and Economic Behavior, Elsevier, vol. 55(1), pages 1-20, April. [Downloadable!] (restricted)
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