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Comparing Bertrand and Cournot Outcomes in the Presence of Public Firms

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  • Arghya Ghosh

    ()
    (School of Economics, The University of New South Wales)

  • Manipushpak Mitra

    ()
    (Indian Statistical Institute)

Abstract

We revisit the classic comparison between Bertrand and Cournot outcomes in a mixed market with private and public firms. A departure from the standard setting, i.e., one where all firms maximize profits, provides new insights. A welfare-maximizing public firm's price is strictly lower while its output is strictly higher in Cournot competition. And whereas the private firm's quantity is strictly lower in Cournot (as in the standard setting), its price can be higher or lower. Despite this ambiguity, both firms, public and private, earn strictly lower profits in Cournot. The consumer surplus is strictly higher in Cournot under a linear demand structure. All these results also hold with more than two firms under a wide range of parameterizations. The ranking reversals also hold in a richer setting with a partially privatized public firm, where the extent of privatization is endogenously determined by a welfare-maximizing government. As a by-product of our analysis, we find that in a differentiated duopoly setting, partial privatization always improves welfare in Cournot but not necessarily in Bertrand competition.

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Bibliographic Info

Paper provided by School of Economics, The University of New South Wales in its series Discussion Papers with number 2008-18.

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Length: 23 pages
Date of creation: Oct 2008
Date of revision:
Handle: RePEc:swe:wpaper:2008-18

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Keywords: Bertrand; Cournot; public firms; partial privatization;

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  1. ANDERSON, S. P. & de PALMA, A. & THISSE, J.-F., . "Privatization and efficiency in a differentiated industry," CORE Discussion Papers RP -1298, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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  8. Vives, Xavier, 1985. "On the efficiency of Bertrand and Cournot equilibria with product differentation," Journal of Economic Theory, Elsevier, vol. 36(1), pages 166-175, June.
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  15. de Fraja, Giovanni & Delbono, Flavio, 1990. " Game Theoretic Models of Mixed Oligopoly," Journal of Economic Surveys, Wiley Blackwell, vol. 4(1), pages 1-17.
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Cited by:
  1. Corrado Benassi & Alessandra Chirco & Marcella Scrimitore, 2014. "Optimal manipulation rules in a mixed oligopoly," Journal of Economics, Springer, vol. 112(1), pages 61-84, May.
  2. Scrimitore, Marcella, 2011. "Profitability in Cournot and Bertrand Mixed Markets under Endogenous Objectives," MPRA Paper 35643, University Library of Munich, Germany.
  3. Ghosh, Arghya & Mitra, Manipushpak, 2010. "Comparing Bertrand and Cournot in mixed markets," Economics Letters, Elsevier, vol. 109(2), pages 72-74, November.
  4. Roy Chowdhury, Prabal, 2009. "Mixed Duopoly with Price Competition," MPRA Paper 9220, University Library of Munich, Germany.
  5. Corrado Benassi & Alessandra Chirco & Marcella Scrimitore, 2011. "Optimal Manipulation Rules in a Mixed Duopoly," Working Paper Series 43_11, The Rimini Centre for Economic Analysis.

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